Amidst a fluctuating market, AZZ Inc (AZZ, Financial) experienced a notable daily loss of -11.15%, contrasting with a three-month gain of 18.7%. Such volatility begs the question of whether AZZ's current stock price reflects its true value. With an Earnings Per Share (EPS) of 3.44, investors are prompted to consider if the stock is modestly undervalued. The following analysis delves into AZZ's valuation, offering readers a comprehensive understanding of its financial standing.
Company Introduction
AZZ Inc (AZZ, Financial) is a North American leader in delivering galvanizing, metal coating, and coil coating solutions. The company's Metal Coatings segment provides a suite of finishing services to combat corrosion, including hot dip galvanizing, spin galvanizing, powder coating, anodizing, and plating. Meanwhile, its Precoat Metals Segment specializes in aesthetic and corrosion-resistant coatings for steel and aluminum coils. A key point of interest for investors is the relationship between AZZ's stock price of $73.24 and its Fair Value (GF Value) of $82.18, which suggests a potential undervaluation worth exploring.
Summarize GF Value
The GF Value is a unique valuation metric that determines the intrinsic value of a stock like AZZ (AZZ, Financial). It incorporates historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and projected business performance. When a stock trades significantly above this value line, it may be overvalued, suggesting lower future returns. Conversely, trading below the line could indicate undervaluation and the potential for higher returns. Currently, AZZ's market cap is $1.80 billion, and the modest undervaluation implies a promising outlook for long-term investors.
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Financial Strength
Before investing, assessing a company's financial strength is crucial to avoid the risk of permanent loss. AZZ's financial strength is rated 4 out of 10, indicating concerns, especially given its cash-to-debt ratio of 0, which is lower than the industry average. This metric, along with interest coverage, provides insight into the company's ability to manage debt.
Profitability and Growth
Profitable companies, particularly those with consistent performance, present less risk. AZZ has shown profitability for 9 out of the past 10 years, with a strong operating margin of 14.41%, outperforming 78.64% of its industry peers. The company's profitability ranks an impressive 8 out of 10. Additionally, AZZ's 3-year average annual revenue growth rate of 49% and EBITDA growth rate of 59.9% surpass most competitors within the Business Services industry, signaling its capacity to create shareholder value through growth.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) offers another perspective on profitability. A higher ROIC than WACC indicates value creation for shareholders. Over the past year, AZZ's ROIC was 8.56, slightly below its WACC of 9.92, suggesting challenges in generating cash flow relative to capital investment.
Conclusion
In conclusion, AZZ (AZZ, Financial) appears modestly undervalued, presenting an interesting opportunity for investors. Despite financial concerns, the company's profitability is robust, and its growth outpaces a significant portion of the Business Services sector. For a deeper dive into AZZ's financials, investors can explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
