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Masco (MAS) Shares Rise 110% in 6 Months: What's Driving It?

Masco Corporation MAS is poised to gain from solid repair and remodel or R&R activity, strong housing industry backdrop and its focus on acquisitions/divestures. The company’s shares have gained 109.6% over the past six months, outperforming the Zacks Building Products – Miscellaneous industry’s 104.3% rally. Also, it has outperformed the S&P 500’s 47.8% rise in the said period.

The solid performance can be attributed to an impressive earnings surprise trend. Masco’s earnings surpassed the Zacks Consensus Estimate in five of the trailing seven quarters. The trend is expected to continue in the near term as well, supported by rebounding housing demand, and repair and remodeling industry amid COVID-19 woes.

Earnings estimates for 2020 and 2021 have moved 13% and 9.7% north in the past 60 days, respectively. This positive trend signifies bullish analysts’ sentiments and justifies the company’s Zacks Rank #2 (Buy), indicating robust fundamentals and the expectation of outperformance in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

 

Let us delve deeper into other factors that make this stock a profitable pick.

What’s Behind the Price Surge?

Acquisitions & Divestitures: Masco continues to expand its portfolio via acquisitions. In the first-quarter 2020, Masco acquired the entire share capital of SmarTap A.Y Ltd. ("SmarTap"), a developer of a smart bathing system that monitors and controls the temperature and flow of water. SmarTap, which has been added in the Plumbing Products segment, provides an adaptable solution for a wide range of products as it is compatible with all showerheads, hand showers, spouts and shower jets.

Masco regularly divests less profitable and underperforming businesses to focus on core areas for accelerating growth and improving shareholder value. The company completed the sale of the Cabinetry business unit in first-quarter 2020, in line with the portfolio transformation strategy that it announced a year ago.

We view these endeavors as tailwinds for the company as these will remove cyclicality and lower-margin businesses. This move will also drive liquidity, thereby helping it to strengthen the product portfolio and boost better-performing businesses.

Transformed Portfolio: Over the years, Masco has remained focused on realigning its portfolio toward lower-ticket, less-cyclical, repair and remodel-oriented products. Strong DIY oriented products position Masco particularly well to overcome this coronavirus-related uncertainty. Notably, the R&R industry represents approximately 90% of Masco’s business. Amid COVID-19-led disruptions, homeowners have been taking on more do-it-yourself or DIY projects, especially easy-to-do projects such as painting, as opposed to having other people in their homes. This trend bodes well for Masco’s lower ticket repair and remodel products. The paint business has been one of the biggest beneficiaries during the COVID crisis as its DIY exposure, low ticket item and ease of use by homeowners have been driving strong demand. Notably, growth in paints and other coating products led to Decorative Architectural Products segment’s sales growth of 8.3% in second-quarter 2020.

Resilient Housing Market: Declining mortgage rates have been driving the U.S. housing industry in recent times. Overall, the U.S. housing market seems to be back on track, defying headwinds like low inventory levels, tight lending conditions, and broad-based economic as well as public health risks associated with the pandemic. Revival of housing demand has been a boon for Masco and companies like Louisiana-Pacific Corporation LPX, Installed Building Products Inc. IBP, PGT Innovations, Inc. PGTI and others from the same industry.

Leading Brand Portfolio: Masco operates through various divisions with a large number of products. It holds one of the largest shares in the faucets market. Its popular brands include Behr paint, Delta and Hansgrohe faucets, bath and shower fixtures, Kichler decorative and outdoor lighting, as well as Hot Spring spas. The Behr brand is the number one brand in the DIY market for architectural coatings. The company has been witnessing strong demand for its market-leading brands.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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