We are downgrading Valmont Industries (VMI) to Underperform from Neutral and are also reducing our target price to $63.00 from $91.00 due to the company’s muted second quarter 2010 profitability and poor topline growth. Valmont fell short of the Zacks Consensus Estimate by 39 cents.
Results were hurt by a subdued performance in the Utility Support Structures and Engineered Support Structures segments, caused by a weak commercial and residential construction market. Soft demand for wireless communication structures as well as poor federal spending on infrastructure led to lower revenues.
We do not expect any significant momentum in Valmont’s major businesses until a new highway bill is passed. Our long-term Underperform recommendation on the stock indicates that it would perform below the market. Our $63.00 target price, based on 15.4x 2010 EPS, reflects this view.