AZZ Inc.: Not Entirely Shocking

AZZ Inc. (AZZ) operates in two product segments: Electrical & Industrial Products, and Galvanizing Services. The company’s Electrical & Industrial Products segment manufactures products used by utilities to safely generate and distribute electricity, as well as industrial lighting and tubular products for the oil and gas industry. AZZ’s galvanizing services segment coats steel products in zinc to protect them from corrosion.

The Company operates fourteen galvanizing plants, which are located in Texas, Louisiana, Alabama, Mississippi, Arkansas, Arizona, Indiana and Ohio. Hot dip galvanizing is a metallurgical process, in which molten zinc is applied to a customer’s material.

The zinc bonding renders a corrosion protection to fabricated steel for extended periods of up to 50 years. The Company typically serves fabricators and/or manufacturers, who provide services to the electrical and telecommunications, bridge and highway, petrochemical and general industrial markets, as well as a number original equipment manufacturers [OEMs].

Sales:

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Quarterly income:

Sales	02-07	05-07	08-07	11-07
Current $Mil	80.0	75.0	82.0	87.0
% Change From Year Earlier	39.10	43.70	29.80	32.50
Net Income
Current $Mil	7.0	4.0	8.0	8.0
% Change From Year Earlier	176.00	0.50	53.90	54.30
Earnings/Share
Current $	0.58	0.34	0.66	0.66
% Change From Year Earlier	163.80	-2.90	46.70	50.00

Free Cash Flow (in $Millions):  

2005	2006	2007	TTM
6	13	7	19
7	7	11	12
0	6	-4	8

 Profitability:

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Ownership: 

Shares Outstanding	12,000,000
Fund Ownership	4,560,000
Total# of Funds	86

Technical Analysis:

Though the market has been bullish on AZZ in general, it’s overbought and that’s a definite concern. It has seen a great rally from $24 to $46 in the past 52 weeks and is trading just below its 80-day resistance level of $44.82. Its beta is 0.3 which is positive and indicates that it doesn’t react much to the volatility of the market.

My Decision:

Per my calculations I expect the stock to trade between $46-52. Given it’s already at $44 and change, I believe its golden run is stalling. The stock has got a relatively high PEG ratio and its current PE is 3 times higher than its industry and sector peers. I am going to put this on the watch-list for my portfolio and HOLD for now. A good time to get into this stock will be when it trades in the $28-32 range.

 Disclosure: None

Comments

[borisb]

the run up since april is rich, and once the quarter closed, May 1st.... it really began to run suggesting the earnings beat was leaked. i would be leary of tip action.

[BuffettStyleInvestor]

I'm a little confused. You highlighed 4 equities that should do well in a bear market and then according to your analysis you rate it a Hold? Why point it out in the first place?

Additionally, your assertion that AZZ has a PE of 3x the industry appears to be inaccurate. I briefly looked it up on yahoo finance and within the industrial goods sector AZZ has a PE of 16.10 and the industry average actually has the exact same ratio of 16.10. What ratios are you looking at?

biz.yahoo.com/p/627mkt...

[stockerati]

User, good questions

1) AZZ bubbled to the top-4 based on one of my multiple screening heuristics, and that's why it got called out as a stock that has done exceptionally in the downturn. It piqued my attention and if you read the article again, you'll notice that I do mention in that post that I need to analyze them further to decide if I'm going in or staying put. I analyzed it and though the recent numbers look good, I'm not very excited about its future potential for reasons outlined in this article. Hence I just added it to my personal watch-list. You should ofcourse make your decision and use your own analysis and judgement. This article just reflects my point of view and my action with this stock.
2) I use Reuters, Barrons and Morningstar for these key ratios. I trust these over Yahoo. Check out www.reuters.com/financ... to see how I got that data

Keep these comments coming. It keeps me real and helps me to think critically. In the end, it helps me just get better.

Appreciate it, user!

[stockerati]

Correction.. My previous comment was addressed to Buffetstyle investor and not user.