Leveraging UW Solutions, Expansion Into Higher-Growth Sectors Will Create Future Opportunities

Key Takeaways

• Apogee targets higher growth sectors like industrial flooring and institutional projects to boost revenues and margins while reducing interest rate exposure.
  
• Strategic acquisitions and strong capital deployment aim to enhance financial performance through new revenue streams and margin improvements.
  
• Continued weak demand in nonresidential construction and interest rate sensitive sectors may pressure Apogee's revenue growth, margins, and overall profitability.

Catalysts

Provides architectural products and services for enclosing buildings, and glass and acrylic products used for preservation, protection, and enhanced viewing in the United States, Canada, and Brazil.

• Apogee Enterprises plans to leverage the capabilities of UW Solutions to expand its presence in higher growth areas, such as industrial flooring, providing exposure to renovation and new warehouse opportunities, which could drive revenue growth.
  
• The company's strategic focus is shifting towards sectors with higher growth rates, such as institutional projects like healthcare and education, which may positively impact revenue and net margins as they move away from interest rate-sensitive sectors.
  
• Apogee's ongoing effort to diversify its sales mix and pursue additional acquisitions could bolster long-term financial performance, potentially enhancing both revenue and earnings.
  
• With a strong balance sheet, Apogee is prepared to continue strategic capital deployment, including potential M&A activity that could be accretive to financials by contributing new revenue streams and higher-margin offerings.
  
• The company is focused on productivity, execution, and cost management, which have supported margin expansion in the past and could help improve net margins and earnings even without significant market growth.

Apogee Enterprises Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Apogee Enterprises's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 8.0% in 3 years time.
• Analysts expect earnings to reach $126.9 million (and earnings per share of $5.67) by about January 2028, up from $98.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.0x on those 2028 earnings, up from 12.9x today. This future PE is lower than the current PE for the US Building industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 0.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Apogee Enterprises Future Earnings Per Share Growth

Risks

• Continued pressure from soft end-market demand in nonresidential construction is impacting volumes in the glass and framing segments, which could suppress revenue and margins.
  
• Interest rate sensitive sectors like office, commercial, and multifamily housing remain weak, impacting key end markets for Apogee and potentially limiting revenue growth.
  
• Price and volume pressures in the glass segment are leading to lower margins, which could impact overall profitability if these conditions persist.
  
• A competitive market may lead to increased cost pressures and unfavorable product mix changes, particularly for the Framing and Glass segments, affecting net margins.
  
• Fiscal '26 operating income headwinds, including moderation in Glass segment margins and potential higher costs, could put pressure on earnings growth.

Valuation

• The analysts have a consensus price target of $83.0 for Apogee Enterprises based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.6 billion, earnings will come to $126.9 million, and it would be trading on a PE ratio of 18.0x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $57.6, the analyst's price target of $83.0 is 30.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.