Leggett & Platt (LEG): Zacks Rank Buy

Zacks

Leggett & Platt Inc. (LEG), which manufactures diversified engineered products and components, has a legacy of strong dividend hikes and recently announced a second straight quarterly earnings surprise. This Zacks #2 Rank (Buy) should be attractive to investors seeking both growth and income given its solid dividend yield of 4.3%, robust top and bottom line projections for fiscal 2012, rising earnings momentum and an expected long-term EPS growth rate of 15.0%.

Stellar Third Quarter

On October 29, Leggett & Platt reported third quarter earnings per share of 45 cents, which beat the Zacks Consensus Estimate by more than 18% and jumped 45% year over year.

Total sales rose 4% to $982.2 million year over year, marginally exceeding the Zacks Consensus Estimate of $981 million. The robust sales performance was primarily due to a 7% rise in same location sales volumes. However, this advance was slightly impacted by a 4% decline in revenue, which resulted from a slip in rod mill trade sales and fluctuations in currency rates.

Gross profit for the quarter surged 20.6% to $205.5 million, while gross margin expanded 280 basis points to 20.9%. Operating income soared 47% to $104.9 million, benefiting from higher unit volumes, diminished raw material costs in certain businesses, restructuring activity in late 2011 and the acquisition of Western Pneumatic Tube. Simultaneously, operating margin improved 310 basis points to 10.7%.

Leggett & Platt forecasts full-year 2012 earnings per share between $1.45 and $1.52. Net sales are anticipated at $3.70 billion to $3.75 billion. The company guided fourth quarter earnings per share of 25 cents to 32 cents, with sales between $830 million and $880 million.

Earnings Forecast on the Rise

All 6 earnings estimates for 2012 have been revised upward over the past 30 days. The Zacks Consensus Estimate has advanced 6.4% to $1.49. As for 2013, the Zacks Consensus Estimate remains stable at $1.62. These estimates represent year-over-year growth of 33% for 2012 and 8.4% for 2013.

Strong Dividend

Leggett & Platt recently announced a quarterly dividend of 29 cents per share payable on December 27.

The company has been consistently raising its dividend since the initiation of the payment in 1987. In August, the company announced its 41st consecutive annual dividend increase, bringing its annualized dividend to $1.16 per share, up 3.6% from the previous level.

The company's current dividend yields about 4.3%, being the highest among the S&P 500 Dividend Aristocrats with more than 30 consecutive annual dividend increases. Furthermore, only 11 S&P 500 companies possess a history of higher consecutive annual dividend increases than Leggett.

Reasonable Valuation

The valuation looks reasonable for Leggett & Platt, with shares trading at 18.1x 12-month forward P/E, a discount of 3.7% with its peer group average. However, on a price-to-book basis, shares are currently trading at 2.7x, an 80% premium to the peer group average of 1.5x.

Nevertheless, the stock looks attractive given a trailing 12-month ROE of 14.7%, which is higher than the peer group average of 11.9%. The company's long-term estimated earnings per share growth rate also remains strong at 15.0%.

Charts

The chart below indicates steady growth in the company's share price since June 25, reflecting an upside of about 38.5%. Shares of Leggett & Platt have continually outperformed its 50 and 200-day moving averages since June and July, respectively. Average volume also remains fairly strong at roughly 1,417K daily.

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 lines include 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 $3.81 billion.


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