Apogee Enterprises

Architectural glass maker Apogee Enterprises had a strong fourth quarter for fiscal year 2016, which ended Feb. 28. Revenue grew 6% to $262 million and earnings were up 47%. Both top and bottom line numbers beat estimates.

The future looks bright as well. Earnings per share guidance for fiscal 2017 (ends February 2017) ranges from $2.65 to $2.80, which is slightly above analysts’ estimates and represents 23% growth.

The stock is up 7.5% since we recommended it on March 3 but has remained flat since mid-March. We believe Apogee is still positioned for robust growth and is a bargain at its current price of $43.

Apogee’s architectural glass division grew 7%, and earnings almost tripled in the 2016 fourth quarter after dropping 5% in the third quarter. Still, architectural glass sales rose over 9% to $378 million in the fiscal year from $346 million in fiscal 2015.

Cash almost doubled to $91 million despite Apogee paying out $13 million in dividends and spending $25 million to repurchase shares. The company has little debt and offers investors a 1.15% yield.

The share price is a bargain for a stock that is a reliable and healthy grower. Apogee trades at only 16 times 2017 estimates even though it’s expected to grow 23%. Apogee continues to expand profits at a higher rate than revenue due to manufacturing improvements, better pricing and more profitable contracts.

The Architectural Billings Index, a leading indicator for future non-residential building demand, jumped to 51.9 in April, up from 50.3 the previous month. Any reading above 50 indicates higher demand and is a positive harbinger for Apogee.

On April 22 Apogee declared a quarterly cash dividend of 12.5 cents per share, the same amount as the company’s previous dividend paid on Jan. 29. The ex-dividend date, or the date by which an investor must own Apogee stock to receive this dividend, is May 10.

On Assignment

On Assignment reported strong earnings on April 27. Revenue rose an impressive 35% and beat estimates by $50 million.  Even without the contribution from recent acquisitions, revenue increased 18%.

Earnings of $.66 beat estimates by 6 cents and guidance for the second quarter is higher than expected.  Management expects second quarter revenue to jump 23% to $.79.

On Assignment’s June 2015 purchase of Creative Circle positions it perfectly to serve the wave of demand for digital technology workers in the market. Its scale and depth of IT talent makes it the go-to shop for temporary and long term assignments.

Free cash flow of $30 million, more than double last year, allowed the company to pay off a portion of the debt used to finance its recent acquisitions.

Adding the $.06 beat from this quarter and the $.02 increase in second quarter estimates brings the annual estimate up to $3.18, a 21% increase.  Assumptions for only 10% growth in fiscal 2017 look light considering the earnings just reported.

Our current target of $48 will likely be raised after estimate revisions.

Ethan Allen

After announcing first-quarter 2016 earnings per share of 34 cents on April 25 and beating estimates by 13%, Ethan Allen’s share price shot up 11%. Revenue grew 10% to $190.6 million, the highest rate since 2011. Earnings exploded 89% compared with the first quarter in 2015. Margins expanded more than a full percentage point to 55.5%, and tight cost controls helped operating profit blossom.

Although some of the increase was linked to faster delivery of already booked orders, CEO Farooq Kathwari said that new products are being well-received by consumers, and he is bullish about three new lines of furniture that will be launched this summer.

Strong cash flow allowed Ethan Allen to pay off $11 million in debt, bringing the balance down 60% from last year. We think estimates of 21% earnings growth for the fourth quarter (ending June) and 11% for the next fiscal year seem too conservative.

The company is trying to win over customers who are weary of long production and delivery cycles for custom furniture with its new Custom Quickship Upholstery service that promises to deliver custom furniture in 30 days or less.

That speedy service gives Ethan Allen an edge over competitor Restoration Hardware, which recently had a bad quarter partly because of shipping delays. According to Restoration Hardware’s website, it takes between 45 and 60 days for custom furniture to arrive.

Ethan Allen should leap another 30% to our $43 target even after its 8% jump on April 26. We’ll be keeping our eyes peeled for upward revisions to estimates that would allow us to increase our target on this well-run retailer.

Exactech

April was also kind to Exactech’s share price, which jumped 15.5% from $20 to $23. The company’s first-quarter 2016 earnings of 31 cents were up 2 cents or about 7% over first-quarter 2015 earnings of 29 cents.

Sales in four of five of Exactech’s segments increased with extremity implant sales leading the way; they were up 15% in first quarter 2016 compared to the same quarter a year ago. Total revenue rose 6% to $65.3 million in the quarter, up from $61.4 million the previous year.

The company received approval from the Food and Drug Administration for its Vantage Total Ankle device designed for patients with arthritis who need a complete ankle replacement. The device is Exatech’s first in the foot and ankle market and incorporates design features of its shoulder joint replacement system, which conserves bone and simplifies surgeries.

The device is scheduled for a full-scale release in first-quarter 2017.

In hindsight, news of the new ankle device is likely behind Robert W. Baird’s upgraded rating on Exactech’s stock last week. The Milwaukee-based investment firm raised Exactech’s target share price to $26 from $21, representing a 13% premium to Exactech’s April 26 close of $23.

Express

We didn’t think it was an April Fools’ joke that on April 1 Express stock was up as much as 20% since we first recommended it March 3. But the rest of April tempered the share price, which has pulled back to a 7% gain. A poor sales number from the company’s competitor Gap sent the entire retail sector into a tailspin. Gap reported a 6% drop in its same-store sales, the 12th consecutive month of declines.

We think the Gap’s problems are self-induced. The company has struggled for some time to regain its footing as an apparel leader and has suffered a revolving door of lead designers.

Express (see our full profile on page 1) continues to do well with its new strategies. Management recently noted that the successful women’s One Eleven brand will expand to men’s fashion. Quick turnaround cycles, fewer sales and low inventory allow Express to keep its merchandise fresh and selling at full price.

Gentex

First-quarter 2016 sales increased 10% from $369 million in first-quarter 2015 to $405.6 million thanks to an 11% increase in auto-dimming mirror sales. While the company’s metrics are in the right direction, first-quarter 2016 earnings only increased 8% to 28 cents compared with earnings of 26 cents for the same quarter in 2015. Fiscal year 2016 and 2017 earnings growth estimates also remain unchanged at 8%.

Gentex is a hold. For the stock to merit a buy, the company needs to increase earnings growth beyond 8%.

Integrated Device Technology

Integrated Device Technology rose as much as 24% earlier this month when almost 17 million shares traded, almost six times the stock’s average volume. A filing was made on the SEC website detailing a $32 bid for the company by a group of Chinese investors. But it turned out to be a red herring.

The company put out a press release saying that it had no communication whatsoever with the Chinese investors. Integrated’s CEO Greg Waters said he is “unaware of any other information that would support a determination that the group’s proposal represents a credible bona fide offer to purchase the company.” See details in Setting the Scene on page 1.

Integrated remains a buy with a $45 target.


Lattice Semiconductor

After China’s Tsinghua Unigroup acquired a 6% stake in Lattice Semiconductor on April 13, the stock leaped 18% to $6.36 . Since then, the share price has pulled back but is still roughly 6% higher than when the news hit.

In a regulatory filing Tsinghua described the position as for “investment purposes,” but added that it may also enter into discussions with management about a “possible commercial agreement.”

In February Reuters reported that an unidentified Chinese buyer had been interested in Lattice. CEO Darin Billerbeck said last year that Lattice would consider an offer for the company at a high-enough premium.

Tsinghua attempted to acquire both Micron and Western Digital last year but abandoned both efforts after the U.S. Committee on Foreign Investment decided to review the deals. The committee analyzes foreign deals to determine if there is any potential for national security concerns.

Size is another factor the committee considers, but with a market cap of just $757 million, Lattice is a pipsqueak compared to Micron’s $11 billion cap and Western Digital’s $10 billion cap.

Industry consultant SAR Research recently released a bullish report on WiGig, the technology integrated into Lattice’s products. WiGig allows for faster wireless connections between laptops and smartphones as well as monitors and storage devices. The company expects to ship more than 2.5 billion WiGig-enabled devices in 2020.

The report comes on the heels of a February announcement that Qualcomm and Intel, the two biggest WiGig chipmakers, were cooperating to make their WiGig devices compatible with one another. The standard that will result is good news for Lattice’s 2015 acquisition, SiBeam. Its WiGig-compatible chips are set to release later this year.

Stepan Co.

Since we recommended Stepan at the beginning of March, the company’s shares appreciated more than 16%. Of that increase, six percentage points came on April 26, after the company reported a 30% increase in earnings to $1.21 in first-quarter 2016 compared with the same quarter a year ago, when earnings per share were 93 cents. The $1.21 first-quarter earnings results represented a more than 27% surprise.

Stepan was moved to a sell on April 20 after it hit our price target, so we missed the last leg up in the shares. Clearly earnings were much higher than expected. However the profit margin gains enjoyed from a more profitable product mix and lower raw material costs will decelerate in the next quarter, pushing us to maintain our sell.

Weyco Group

Since we recommended the stock in early March, Weyco Group’s share price is up 7%. But the company’s current-year earnings estimate dropped to $1.75 from $2.01 per share so Weyco is likely to remain a hold.

Weyco Group will announce first-quarter 2016 financial results after the market closes on May 3.