AZZ
Inc. (AZZ, $59.05): “A Bright 2018 May Be On The Way”
By:
Max Mattappillil, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
• AZZ, Inc. (NYSE:AZZ) is a global provider of galvanizing, welding
solutions, specialty electrical equipment, and highly engineered services. AZZ provides
support to the power generation, transmission, and industrial markets.
• Fiscal 2017 was AZZ’s
year as a financial punching bag.
• Acquisitions of PEI
Enclose and Alpha Galvanizing have brought AZZ success in addition to their
recent decision to retaining Nuclear Logistics.
• 2018 may require
sunglasses for AZZ’s shareholders as the year looks to be bright.
Key
points: AZZ experienced a very rough fiscal 2017 as their Net
Sales, EPS, Gross Margins and Operating Margins all fell while their effective
tax rate increased. Low oil patch activity and a rising cost of zinc reduced
AZZ’s ability to expand their sales across multiple markets. Management also
realized that they may have been a bit aggressive in terms of implementing too
many initiatives towards business operations without a reasonable time frame to
recognize returns.
However, AZZ could stay
somewhat positive as their recent acquisitions of Power Electronics and Alpha
Galvanizing have performed very well during fiscal 2017. Combined with AZZ’s
fairly recent decision to co-manage Nuclear Logistics with Westinghouse, Azz
might just return to being in the black.
AZZ remains obstinate on keeping
its corporate staff tight-knit, despite the disadvantages a low-staffed team
may bring. To counteract this, AZZ recently added an executive that will focus
on operational improvement so that AZZ can smooth its various segments and
move forward from the rough patches fiscal 2017 carried.
The petrochemical market
has begun to move in favor of AZZ and its new plant for its galvanizing segment
is operating with every cylinder firing, boosting AZZ into fiscal 2018. AZZ
also secured a contract with Beijing Sino-American Yuli Power Technology to
provide 11,500 meters of underground gas insulated line for the new Chinese
power project. Establishing global momentum may be the catalyst that pushes AZZ
towards a successful fiscal 2018.
What
has the stock done lately?
Since AZZ released its earnings
on April 20th, 2017, its share value dropped 7.3%. While this drop broke AZZ
out of its month long trading range between roughly $57-$60, it spiked up 12.2%
over the next five days and recently closed near the top of its previous
trading range. While AZZ foresees strong growth for 2018, AZZ is still heavily
influenced by the energy market and zinc prices and may return to its previous
trading range once again if no significant changes occur.
Past
Year Performance: AZZ reached a
maximum 1 year share price of $67.67 in September 2016 only to drop down to its
lowest 1 year price of $51.60 two months later. Since 2017, AZZ has remained
fairly stable and traded in a range between $56 and $60, however it has
recently broken out of that range from both the floor and ceiling.
Source: FactSet
My
Takeaway
AZZ had to face
significant headwind against its fiscal 2017 operations and currently feels
those effects as seen by a reduction in its solar business as well as low oil
patch activity. However, AZZ seems to have laid out its groundwork 2018 at a
granular level in order to maximize its chances of improving operations.
AZZ
recognizes where they struggled and have taken measures to turn their
weaknesses into strengths. An increase in AZZ's acquisition rate and a more
global focus on large projects might be the push that lets AZZ put fiscal 2017
firmly behind them.
