Here's Why Masco (MAS) Will Likely Outpace Industry This Year
Masco Corporation MAS shares have gained 4.5% in the year-to-date period, underperforming the Zacks Building Products – Miscellaneous industry’s 10.4% rise.
The company has been ailing from intense inflation, supply chain woes and unfavorable foreign currency.
Nonetheless, the stock has started improving of late, thanks to its market-leading brands, acquisition synergies and cost-saving moves. A solid long-term growth prospect amid slow housing demand is also commendable.
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Let’s delve into the influencing factors of this Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Factors Supporting Growth Trajectory
Solid Brands: Masco operates through various divisions with a large number of products. Its popular Behr brand is the number one brand in the do-it-yourself (DIY) market for architectural coatings. The PRO paint business within the Decorative Architectural segment continues to gain a significant share in the market. PRO, which accounts for one-third of its paint business, reported sales growth of more than 25% in 2022. Impressively, PRO paint has a three-year run rate of approximately 70%. Recently, Masco launched adjacent paint categories like aerosols, interior stains and caulks and sealants within PRO that are expected to add benefits in 2023. Delta also continues to drive strong consumer demand across all its product categories and channels.
Long-Term Growth Prospects: Masco expects solid growth in the long run, as it anticipates generating 3-5% average annual sales growth organically. The acquisitions are likely to contribute 1-3% yearly to sales. It anticipates approximately 10% average annual EPS growth, backed by a strong operating margin, expansion through cost productivity and volume leverage. This apart, it plans to return shareholders 1-2% above EPS growth via dividends and 2-4% through repurchases. The Zacks Consensus Estimate for long-term EPS growth is currently pegged at 4.9%.
Cost-Saving Moves: Masco mainly focuses on business consolidations, system implementations, plant closures, branch closures, improvements in the global supply chain and headcount reductions to improve profitability. These initiatives target company-wide annual savings by reducing corporate expenses and simplifying its organizational structure. Selling, general and administrative expenses — as a percentage of net sales — declined 90 bps in 2022, backed by operating leverage and continued cost discipline across the businesses.
Buyout Synergies: Masco believes in expanding its portfolio through acquisitions. In third-quarter 2021, the company’s Delta brand acquired a leading manufacturer of residential steam bath products, namely Steamist, Inc. This complements Masco’s strong trade and e-commerce product offerings.
Masco regularly divests its less profitable and underperforming businesses to focus on its core areas to accelerate growth and improve shareholder value. On May 31, 2021, it completed the divestiture of the Huppe GmbH business, a manufacturer of shower enclosures and shower trays, from the Plumbing Products segment.
Key Picks
Some other top-ranked stocks in the same space are:
Installed Building Products, Inc. IBP — sporting a Zacks Rank #1 — is a leading installer of insulation and complementary building products. It primarily banks on a robust pipeline of acquisition opportunities across multiple geographies, products and end markets.
Installed Building’s earnings for 2023 are expected to decline by 5.7%. Nonetheless, the same has moved north to $8.44 per share from $7.45 per share over the past 60 days, reflecting analysts’ optimism for its growth potential.
Otis Worldwide Corporation OTIS — holding a Zacks Rank #2 — is one of the leading elevator and escalator manufacturing, installation and service companies. Otis’ primary focus on innovation is core to its strategy. The company connects global R&D efforts through an operating model that sets global and local priorities based on customer and segment needs. Its focus is on innovation and expansion of the digital ecosystem and a suite of digital solutions for both existing service portfolio customers and new equipment shipments from factories.
OTIS surpassed earnings estimates in all of the trailing four quarters with the average surprise being 4.6%. The company’s earnings for 2023 are expected to increase by 8.2%.
CRH plc CRH currently carries a Zacks Rank #2. The long-term earnings growth rate is anticipated to be 10.2%.
The Zacks Consensus Estimate for CRH’s 2023 sales and EPS indicates growth of 6% and 9.2%, respectively, from the previous year’s reported levels.
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Masco Corporation (MAS) : Free Stock Analysis Report
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Otis Worldwide Corporation (OTIS) : Free Stock Analysis Report
