AZZ Inc.: Building Resilience in a Volatile Economy

The infrastructure sector is no stranger to volatility, yet AZZ Inc. (NYSE: AZZ) has emerged as a standout performer, leveraging disciplined capital management and strategic acquisitions to fortify its position. With a focus on hot-dip galvanizing and coil coating—a critical link in infrastructure, construction, and industrial supply chains—AZZ is well-positioned to capitalize on long-term trends while navigating near-term headwinds. Its recent moves, including the Canton Galvanizing acquisition and a new $110 million coil coating facility in Missouri, underscore a playbook of resilient cash flow, frugal debt reduction, and growth-oriented investments. For investors, this sets the stage for outperformance in 2026 and beyond.

Cash Flow: The Bedrock of AZZ's Strategy

AZZ's financial resilience is anchored in its ability to generate robust operating cash flow. In fiscal 2025, the company reported $249.9 million in operating cash flow, up from $244.5 million in the prior year, while reducing net debt by $110 million to $894.2 million. This deleveraging has slashed its net leverage ratio to below 2.5x, a significant improvement from 2.9x in 2024. The company's strong liquidity—backed by a $400 million revolving credit facility (with $355 million unused)—provides a buffer against macroeconomic risks like rising zinc prices or delayed infrastructure spending.

This financial discipline has enabled AZZ to avoid aggressive share buybacks and prioritize debt reduction. By reducing interest expense by 24% to $81.3 million in 2025, the company has freed up cash to reinvest in high-return projects.

Strategic Acquisitions: Filling Gaps, Boosting Returns

The July 2025 acquisition of Canton Galvanizing exemplifies AZZ's ability to expand its footprint while driving accretive growth. Canton, a Midwest-based galvanizer specializing in mid-sized parts, adds a 21-foot kettle facility and fills a geographic gap in AZZ's network. The deal:
- Expands AZZ's North American galvanizing sites to 42, reinforcing its dominance.
- Reduces customer logistics costs by improving regional coverage.
- Immediately accretive to earnings, with synergies from shared purchasing power (e.g., zinc and natural gas).

Meanwhile, the $110 million coil coating facility in Washington, Missouri, slated to open in 2025, adds 120 million pounds of annual capacity—75% of which is already under long-term contracts. This project:
- Targets the $10 billion U.S. coil coating market, which benefits from demand for durable, corrosion-resistant aluminum in construction, HVAC, and renewables.
- Positions AZZ to capture $60 million in annual sales by 2026, with EBITDA margins exceeding its fleet average.

Growth Catalysts: Infrastructure and Sustainability Tailwinds

AZZ's services are deeply tied to U.S. infrastructure spending, which remains a bipartisan priority. The Biden administration's $550 billion infrastructure plan directly benefits AZZ's core markets:
- Transportation: Galvanizing is critical for bridge and highway components.
- Renewables: Steel towers for wind turbines and solar mounting systems require galvanizing to withstand corrosion.
- Residential/Commercial Construction: Coil-coated metal is a staple in roofing, siding, and HVAC systems.

The company's focus on sustainability—such as reducing energy use in its facilities and offering eco-friendly coatings—aligns with ESG trends, attracting customers in regulated industries.

Risks and Mitigants

AZZ isn't immune to macro risks:
- Zinc prices: Up 30% since early 2024, but AZZ's scale allows bulk purchasing discounts.
- Economic slowdown: Reduced infrastructure spending could dampen demand, though AZZ's diversified client base (construction, energy, agriculture) softens this risk.
- Supply-chain bottlenecks: Mitigated by long-term supplier contracts and in-house logistics.

Investment Thesis: Buy with a 2026 Upside

AZZ's stock has underperformed peers in 2025, trading at 12.5x 2026E EBITDA, a discount to its historical average. However, the company's $60–$100 million debt-reduction target for 2026, coupled with accretive growth from its new facilities, could unlock value. Key catalysts ahead:
- AVAIL JV proceeds: The $975 million sale of AVAIL's Electrical Products Group (expected H1 2026) will further strengthen liquidity.
- Missouri facility ramp-up: Full utilization by late 2026 could boost margins.

With a price target of $104 (vs. current $88), AZZ offers a 15% upside. The stock is a “Buy” for investors seeking a leveraged play on infrastructure resilience and disciplined capital management.

In a world where infrastructure spending remains a policy priority, AZZ's combination of operational excellence, strategic M&A, and financial prudence positions it to thrive—regardless of the economic cycle.