Why Apogee Rocketed 25% Higher Today

Shares of architectural products and services company Apogee Enterprises (NASDAQ: APOG) rallied 25.5% on Friday, as of 2 p.m. ET.

Apogee released second-quarter earnings today. Not only did the company beat expectations, but it also raised profit guidance for the rest of the year, even amid negative revenue growth. The news sent shares rallying to all-time highs.

Management is enhancing profitability

Apogee makes high-end framing, glass, and protective acrylic building products, and also provides architectural services. But its main markets are in the non-residential space. So, it hasn't exactly had a great growth profile recently as non-residential construction has had a tough few years amid work-from-home trends and higher interest rates.

However, the tough environment has made the stock quite cheap. Meanwhile, management has been cutting lower-margin business and boosting profitability through an initiative called Project Fortify. That came out in today's earnings report. While revenue fell 3.2%, the company's non-GAAP (adjusted) earnings per share (EPS) managed to grow 5.9% to $1.44. And both figures handily beat analysts' low expectations.

Moreover, Apogee actually raised its full-year outlook for adjusted EPS to a range of $4.90 to $5.20. That's up from a prior range of $4.65 to $5 given on the prior earnings release. This is even as the company maintained an outlook for a 4% to 7% revenue decline.

Looking ahead

Apogee is now up 65% on the year after today's rally, but it still only trades at 16.7 times the midpoint of this year's just-revised EPS guidance. While that's a higher P/E ratio than it's had over the past year, it's not that expensive. And should the company's transformation continue to succeed and Apogee eventually return to top-line growth, Apogee could still be a solid buy.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.