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4 Factors That Underscore Armstrong World's Solid Prospects

Zacks Equity Research

Armstrong World Industries, Inc. AWI is poised to benefit from strategic inorganic moves, higher price realization and volume growth. Also, solid performance in the company’s businesses and higher average unit value (AUV) are driving performance.

Notably, shares of Armstrong World have surged 56.9% in the past year compared with the industry’s 38% rally. Moreover, earnings estimate for 2020 have increased 0.2% in the past 30 days, reflecting analysts’ optimism surrounding the company’s growth potential.

Let’s discuss the factors that substantiate the company’s Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

What Makes the Stock an Attractive Pick?

Impressive Earnings, Revenue & EBITDA Performance: Armstrong World impressed investors with solid top- and bottom-line performances in the first nine months of 2019. The company reported sales growth of 7.5% during the period. Also, adjusted earnings per share increased 22% and adjusted EBITDA margin expanded 248 basis points (bps) on a year-over-year basis in the said period.

The performance was backed by solid volume growth in the Architectural Specialties unit and higher AUVs in the Mineral Fiber segment. Moreover, lower manufacturing expenses along with higher equity earnings from WAVE contributed to the upside.

Inorganic Moves to Drive Growth: Armstrong World follows a systematic inorganic strategy to enhance its portfolio with acquisitions being one of them. The company’s recent acquisition of Architectural Components Group, Inc (“ACGI”) boosted the existing wood ceiling and wall solutions business. Notably, the mention acquisition added $7 million to the company’s total net sales during the third quarter of 2019.

Apart from strategic acquisitions, Armstrong World entered into an agreement in November 2017 to divest its EMEA and Pacific Rim businesses to Knauf. The divestiture was in line with the European Commission’s motive to reduce the level of competition in certain markets as well as lead to increased prices for commercial and public customers. On Sep 30 2019, the company completed the sale of EMEA and Pacific Rim businesses.

New Product Launches: Armstrong World has been investing in new products, sales and support services as well as advanced manufacturing capabilities. The company’s new product launches include Sustain and Total Acoustics product families and DESIGNFlex. Also, the company is rolling out new digitally-enabled solutions like Revit families to its website for the DESIGNFlex products. Having experienced extraordinary rates of adoption by architects, the company expects these products to fare well in 2020 as well.

Higher Price Realization: Apart from acquisitions and launch of new products, Armstrong World has been implementing higher prices to mitigate excessive cost pressure. Going forward, the company is expected to maintain its pricing power in ceilings, based on strong distribution network and innovation.

Courtesy of higher volume and price mix, adjusted EBITDA increased 13.4% year over year in the third quarter. Also, adjusted earnings rose more than 20% year over year.

Other Stocks to Consider

Some other top-ranked stocks in the same space are Arcosa, Inc ACA, CRH plc CRH and GCP Applied Technologies Inc GCP. Arcosa and CRH plc currently sport a Zacks Rank #1, whereas GCP Applied Technologies carries a Zacks Rank #2.

Arcosa has three-quarter positive earnings surprise of 57.9%, on average.

CRH’s 2020 earnings are expected to rise 15.3%.

GCP Applied Technologies has three-five year expected earnings per share growth rate of 18%.

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Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
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