RPM International Hits New 52-Week High: More Room to Drive Higher?

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RPM International Inc.RPM hit a new 52-week high of $66.89 on Aug 24. The stock pulled back to end the trading session at $66.81, gaining 1.2%. That said, we noticed that RPM outperformed the industry in each of 4-week, 12-week and 52-week time frames.

In fact, shares of RPM have advanced 37% year to date, outpacing the Zacks Paints and Related Products industry 's growth of 32.8%. Healthy segmental growth and strong cost-saving initiatives, along with strategic acquisition trend should drive the stock's performance in the upcoming quarters as well.

Also, earnings estimates for fiscal 2019 and 2020 have remained steady over the past 30 days, with expected year-over-year growth rate of 24% and 19%, respectively. This Zacks Rank #3 (Hold) company has an impressive Growth Score of B. The company's long-term earnings growth rate stands at 9%.

Importantly, the industry has portrayed a bull run in a year's time, as is evident from its surge of 32.9%, outperforming the S&P 500 index's growth of 18.2%. Impressively, the industry ranks in the top 46% (118 out of 256) of the Zacks classified industries. In fact, the industry has been gaining from a buoyant U.S. economy and robust construction market fundamentals.

What's Driving the Stock?

RPM recently reported fourth-quarter fiscal 2018 results, wherein the company's net sales of $1.56 billion increased 4.4% year over year, with more than 50% of the total sales coming from the Industrial segment. In fourth-quarter fiscal 2018, the segment's sales increased 10.8%, following a gain of 9.2% in third-quarter fiscal 2018.

RPM's Industrial segment acts as a key catalyst behind the company's overall growth. The segment has been reporting impressive numbers for quite some time now, backed by strategic acquisitions, higher price implementation, organic sales and foreign currency translation. Organic sales growth contributed 6.2%, while acquisitions added 1.7%. Foreign currency translation positively impacted sales by 2.9%. Also, increased sales in Tremco Roofing's liquid applied products and cost-cutting initiatives bode well for the company.

In fiscal 2019, the company expects Industrial segment sales to increase in the mid-single-digit range, with the help of robust construction activity and a mostly stable international backdrop outside Brazil. RPM's industrial coatings business will also likely benefit from ongoing oil and gas market recovery.

Meanwhile, the company remains focused on lowering costs, which will have a significant positive impact on its bottom line. To this end, it is targeting to reduce costs by closing plants, merging IT system, centralizing more of its back-office functions and rationalizing its manufacturing footprint.

These cost-saving measures are expected to improve its operating margin significantly in fiscal 2019. Also, the company announced cost reduction as well as plant consolidation plans, primarily at Rust-Oleum. These efforts will generate $25 million of savings on an annualized basis.

Notably, acquisitions constitute significant part of RPM's growth strategy. In fiscal 2018, acquisitions added 3% to net sales. Recent acquisitions include Miracle Sealants Company and Whink Products, acquired through its Rust-Oleum business group. The buyout of Miracle Sealants adds another platform within Rust-Oleum's hard surface care product portfolio. The Whink acquisition will also accelerate the company's expansion into other indoor cleaning solutions. It is on track to pursue more acquisitions going forward.

Meanwhile, improved product line, market share gains, higher advertising campaign for new product placements and the recent purchase of Miracle Sealants are expected to drive growth of RPM's Consumer segment sales to mid- to-upper single-digit range for fiscal 2019.

Stocks to Consider

Some better-ranked stocks from the broader Construction sector include Comfort Systems USA, Inc. FIX , Gates Industrial Corp. plc GTES and Jacobs Engineering Group Inc. JEC . While Comfort Systems sports a Zacks Rank #1 (Strong Buy), Gates and Jacobs both carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Comfort Systems' earnings surpassed the consensus estimate in three of the trailing four quarters, with an average positive surprise of 11.2%.

Gates Industrial's 2018 earnings are expected to increase 42.2%.

Jacobs surpassed earnings estimates in each of the trailing four quarters, resulting in an average positive surprise of 15.4%

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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.

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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