On Sep 18, we maintained a Neutral recommendation on
) despite solid second-quarter 2013 results as we await
substantial improvement in big ticket remodeling and the Cabinet
Why the Neutral Recommendation?
Masco's second-quarter 2013 (results announced on Jul 29)
adjusted earnings of 23 cents per share surpassed the Zacks
Consensus Estimate of 19 cents by 21.1%. Earnings improved 109.1%
year over year driven by new products, strong performance in
North America, solid margin expansion, the company's turnaround
efforts and profit improvement initiatives.
Masco's net sales also surpassed the Zacks Consensus Estimate
by 2.4%. Revenues rose 10.5% year over year driven by strong
volume growth. Volumes benefited from new product and program
launches and increase in new home construction activity in the
U.S. Revenue growth was supported by robust top-line increase in
all the segments. Consolidated margins also improved in the
quarter driven by cost controls and better operating leverage.
Most encouragingly, both Installation and Cabinetry segments
returned to profitability in the quarter after underperforming in
Estimates were mostly revised upwards following the solid
second-quarter results. The Zacks Consensus Estimate for 2013 was
increased by around 10% while that for 2014 moved up
approximately 9% over the past 60 days.
Overall, we have faith in Masco's long-term fundamentals and
are encouraged by its continued focus on product innovation and
cost improvements. The company is also divesting its
less-profitable and underperforming assets to focus more on its
However, the housing downturn and overall economic recession
in the past 4-5 years significantly hurt consumer spending on
home improvement, especially large kitchen and bathroom
remodeling. Though some improving trends are being seen in
repair/remodeling spending, we prefer to wait until we see a
substantial resumption in spending for home improvements,
especially for large-projects.
Moreover, Masco's Cabinet business has been soft for some time
mainly because of the slowdown in consumer spending for big
ticket remodeling. The Eurozone crisis also remains a persistent
overhang. Though improving trends have been noticed, we await
more substantial improvement in the cabinetry business and in
Other Stocks to Consider
Masco carries a Zacks Rank #2 (Buy). Other stocks in the
building/construction industry that are currently doing well
CaesarStone Sdot-Yam Ltd.
Drew Industries Inc.
). While CSTE carries a Zacks Rank #1 (Strong Buy), DW and PGTI
carry a Zacks Rank #2 (Buy).
CAESAR STONE SD (CSTE): Free Stock Analysis
DREW INDS INC (DW): Free Stock Analysis
MASCO (MAS): Free Stock Analysis Report
PGT INC (PGTI): Free Stock Analysis Report
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