With only 66% of the authorized spending allocated, the Infrastructure Investment and Jobs Act (IIJA), initiated under President Biden’s administration, is set to continue under President-elect Trump. Trump’s administration and the new Congress will have the power to direct billions of dollars in remaining grants. This could bode well for companies like AZZ Inc. (AZZ), one of the leading independent providers of hot-dip galvanizing and coil coating solutions, offering metal coating services essential for infrastructure projects.
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The company has benefited from the increased infrastructure spending thus far, using the strong cash flow to reduce debt and make strategic investments, such as a newly constructed aluminum coil coating facility in Washington, Missouri. The company showcases a solid financial performance, with Q2 earnings beating expectations. The stock is up 65% year-to-date and shows ongoing positive momentum while trading at a reasonable valuation, making it a solid choice for investors interested in Industrial sector exposure.
AZZ Is Growing Organically and Alert to Opportunities
AZZ is among the leading independent hot-dip galvanizing and coil coating services providers. These services provide durable metal coating solutions, improving the lifespan and aesthetics of buildings, products, and necessary infrastructure.
Construction-related markets have contributed 57% of the company’s coating sales and continue to show robust growth, propelled by infrastructure projects such as bridges, highways, transmission and distribution, and renewables. This growth aligns with the prevalent trends in public-sector construction, energy, and manufacturing.
Within the first half of the fiscal year, the company has been growing organically, though it continues to be alert to possible bolt-on acquisition opportunities for future inorganic growth. To strengthen its balance sheet, the company has focused on paying down debts, recently repaying $20 million and lowering interest costs by repricing the outstanding term loan.
AZZ is building a new aluminum coil coating facility in Washington, Missouri. This facility will boost capacity in the aluminum container sector with anticipated sustainable growth. Management projects the facility to commence operations by the beginning of Fiscal year 2026. A long-term contract with a customer who has committed to 75% of the new site’s capacity has already somewhat derisked this facility’s production and capacity.
AZZ Presents Increases Across Most Financial Fronts
In the second quarter of FY 2025, the company reported sales of $409 million, a 2.6% increase from the same quarter last year. Metal Coating sales saw a 1% increase, while Precoat Metal sales increased by 3.8%. Gross profit for the quarter was $103.5 million, or 25.3% of sales, marking a 90 basis point increase from the previous year. Both Metal Coatings and Precoat Metal segments experienced improved gross margins.
Selling, general, and administrative expenses were slightly down at $35.9 million or 8.8% of sales, compared to $36.2 million or 9.1% of sales in the prior year. Operating income improved to $67.6 million or 16.5% of the sales compared to $61 million or 15.3% in last year’s second quarter. The interest expense for the quarter was $21.9 million, lower than the previous year due to consistent debt repayment and re-pricings.
Net income for the second quarter was $35.4 million, up from $28.3 million recorded last year. Q2 adjusted net income came in at $41.3 million, reflecting an 11% increase from the prior year—adjusted earnings per share (EPS) of $1.37 beat consensus estimates of $1.31.
Management has issued guidance for the full fiscal year, expecting total debt repayments to exceed $100 million, sales of $1.525 billion to $1.625 billion, with an increased adjusted EPS guidance to $4.70 to $5.10.
What Is the Price Target for AZZ Stock?
The stock has been upward, climbing 84% over the past year. It trades at the high end of its 52-week price range of $50.27 – $97.98 and demonstrates positive price momentum as it trades above all major moving averages. The P/S ratio of 1.62x aligns with the industrial sector average of 1.64, suggesting the stock is fairly valued.
Analysts following the company have been bullish on AZZ stock. For example, Jefferies analyst Stephen Volkmann, a five-star analyst according to Tipranks’ ratings, recently raised the price target on the shares to $110 while maintaining a Buy rating, noting the landscape has changed as the markets have turned more bullish on industrial trends and the tailwinds from North America infrastructure and construction markets.
AZZ is rated a Strong Buy overall, based on the recent recommendations from four analysts. The average price target over the next 12 months for AZZ stock is $100.00, representing a potential 6.19% upside from current levels.
Final Analysis on AZZ
AZZ is well-positioned to take advantage of the ongoing funds from the Infrastructure Investment and Jobs Act. The company has shown solid financial performance by reducing debt and making strategic investments. Its Q2 earnings beat expectations, and with the new aluminum coil coating facility under construction, continued growth is on the horizon. The stock’s positive momentum and reasonable valuation make it a viable investment choice for those seeking industrial sector exposure.
