On Dec 15, 2014, we issued an updated research report on premium railroads manufacturing firm L.B. Foster Co. (FSTR). The company offers a variety of non-imitable products and services to the rail, construction, energy and utility markets through its Rail, Products, Construction and Tubular Product segments. The company has a wide global network, but is also exposed to stiff competition within the industry.

Bullish Factors

In third-quarter 2014, L.B. Foster generated robust cash flow of $49.6 million from its operating activities, a significant increase from $2.5 million in the year-ago quarter. This solid cash flow came in handy for the company when it closed the Carr Concrete Products acquisition in July.

Also, the company enhanced its capital expenditure on the cash generated from its operating activities. Such growth initiatives would help enhance shareholders’ value in the upcoming quarters.

Bookings and backlog play an important role in determining the revenues of any construction company like L.B. Foster. In third-quarter 2014, the company’s backlog and bookings increased 13% and 7% from the respective year-ago values, indicating a prospering business.

Furthermore, the company has inked a new credit contract with its banking team. The company aims at boosting its liquidity on higher credit provisions. This would facilitate stronger cash flows in the near future, supporting both organic and inorganic growth plans of the organization. Also, with a stronger cash position, L.B. Foster aims to hike its dividend offerings in the upcoming quarters.

Bearish Outcomes  

In the last reported quarter, L.B. Foster’s adjusted earnings of 88 cents per share came 7.4% lower to the year-ago quarter. Adjusted earnings also missed the Zacks Consensus Estimate by 11 cents. The company’s earnings declined as a result of higher costs related to ERP (Enterprise Resource Planning) implementation and acquisitions. Moreover, higher operational expenses in the third quarter had caused earnings to slip.

Steel is used as the key raw material for most of L.B. Foster’s operations. However, due to cyclic availability, its price and ease of use remain uncertain. Moreover, the company depends on a few suppliers for its operations. In case there is a disruption in the adequate or timely supply of raw materials, the company may incur losses.

To survive in a highly competitive market, L.B. Foster has to be in sync with current technologies and remain updated, which requires considerable investments. Although the company faces no direct competition, various firms compete with each of its product offering. Moreover, the company’s overseas operations expose it to foreign currency risks and international geopolitical challenges.

L.B. Foster currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Kobe Steel Ltd. (KBSTY), Nucor Corp. (NUE) and United States Steel Corp. (X). While Kobe Steel sports a Zacks Rank #1 (Strong Buy), both Nucor and U.S. Steel carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
FOSTER LB CO (FSTR): Free Stock Analysis Report
 
UTD STATES STL (X): Free Stock Analysis Report
 
NUCOR CORP (NUE): Free Stock Analysis Report
 
KOBE STEEL-ADR (KBSTY): Get Free Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research