Investors seeking a safe haven in this sluggish economy will
Leggett & Platt Incorporated
) to be an attractive investment opportunity. This diversified
engineered products and components manufacturer is a Zacks #2 Rank
(Buy), pays a dividend that yields a solid 4.8% and has delivered
an average positive earnings surprise of 7.4% over the last 10
Earnings momentum has been moving upward in the past week for LEG
since it reported impressive second-quarter results, which included
year-over-year EPS growth of 11.4%, a positive earnings surprise of
8.3% and an upbeat guidance.
Profit Surges, Guidance Up
On July 26, Leggett & Platt declared second-quarter 2012
earnings per share of 39 cents, topping the Zacks Consensus
Estimate of 36 cents and the year-ago earnings of 35 cents.
Total sales of $938.8 million fell short of the Zacks Consensus
Estimate at $979 million and dipped marginally from $945.2 million
a year ago, due to a 2% decline in same location sales. Gross
profit grew 2.9% to $187.2 million, while gross margin expanded 70
basis points to 19.9%. Operating income rose 9% to $86.2 million,
whereas operating margin improved 80 basis points to 9.2%.
Buoyed by better-than-expected bottom-line results, management
raised its 2012 guidance to between $1.35 and $1.50 per share on
projected sales between $3.65 billion and $3.8 billion. Earlier,
the company had forecasted between $1.25 and $1.45 per share.
Earnings Momentum Moving Upward
This Zacks #2 Rank (Buy) stock has been witnessing upward estimate
revisions over the past 7 days. The Zacks Consensus Estimate for
2012 rose 6.1% to $1.39 per share on upward revisions from 5 of 6
estimates. The current estimate implies year-over-year growth of
The Zacks Consensus Estimate for 2013 is up 3.2% to $1.62 per
share, also on upward revisions from 5 of 6 estimates. The current
estimate suggests year-over-year growth of 16%.
Dividend Portraying Strength
Leggett & Platt has been consistently raising its dividend
since initiating the payment in 1987. The current quarterly payout,
which stands at 28 cents, represents an annual yield of 4.8%.
Leggett & Platt's commitment towards enhancing shareholder
return reflects its free cash flow generating capability, sound
liquidity position and defined future prospects.
Valuation Looks Reasonable
Leggett & Platt currently trades at a forward P/E of 16.7x,
reflecting a 3.3% discount to the peer group average of 17.2x.
However, on a price-to-book basis, shares trade at 2.4x, a
substantial premium to the peer group average of 1.1x. Given the
long-term earnings growth projection of 15%, the PEG ratio comes in
at 1.1, marginally above the benchmark of 1 for a fairly priced
stock. The return on equity (ROE) looks impressive. It has a
trailing 12-month ROE of 13.3%, which is ahead of its peer group
average of 11.6%.
A Look at the Chart
A quick look at the price and consensus chart reveals that the
stock price line remains below the 2012 and 2013 earnings estimate
lines, reflecting that the stock is still undervalued.
Leggett & Platt has a well-diversified customer base and solid
research and development capabilities, which provide a competitive
edge and strengthen its pricing power in the market. With a low
fixed cost base, spare production capacity and healthy operating
cash flow generating capability, the company remains well
positioned to grab opportunity when the economy revives. The
company faces competition from Flexsteel Industries Inc. (
) and Genuine Parts Company (
Founded in 1883 and headquartered in Carthage, Missouri, Leggett
& Platt is a global manufacturer that conceives, designs and
produces a broad variety of engineered components and products
found in homes, offices, retail stores and automobiles. The
company's most important product line includes components for
residential furniture and bedding, retail store fixtures and point
of purchase displays, and components for office furniture. It has a
market cap of $3.26 billion.
LEGGETT & PLATT (LEG): Free Stock Analysis
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