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Longbow: 5 Reasons To Like Interface

Jayson Derrick

Shares of carpetmaker Interface, Inc. (NASDAQ: TILE) are trading at an attractive valuation, and any concerns tied to its second-quarter earnings report are overblown, according to Longbow Research. 

The Analyst

Longbow's David MacGregor upgraded Interface from Neutral to Buy with a newly established $30 price target.

The Thesis

The bullish case for Interface's stock is based on five factors, MacGregor said in the upgrade note. (See the analyst's track record here.) 

They are: 

  • Organic orders rose 9.7 percent year-over-year in the second quarter to $290.9 million, which implies continued momentum after 8-percent growth in the fourth quarter of 2017 and 12.1 percent in the first quarter 2018.
  • Investor concern over a fall in gross margins in Q2 can be attributed to transitory issues, including delayed productivity initiatives and a negative mix shift from the lower-margin Interface Services business.
  • The company's LVT business should grow at 100 percent in 2018 and again in 2019, and the premium margin product should translate to topline growth.
  • The acquisition of Nora Systems should be accretive to fiscal 2018 earnings per share by 3-6 cents and positively impact 2019 gross margins.
  • The stock is trading at a P/E multiple of 13.9 times and EV/EBITDA multiple of 8.8 times versus the five year P/E average multiple of 17 times and EV/EBITDA multiple of 9.2 times.

Price Action

Interface shares were trading up 3.9 percent to $23.28 at the time of publication Tuesday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For August 14, 2018

Interface Downgraded By Raymond James On Brexit Risks

Latest Ratings for TILE

Date Firm Action From To
Aug 2018 Longbow Research Upgrades Neutral Buy
Oct 2017 Nomura Maintains Buy
Apr 2017 Nomura Initiates Coverage On Buy

View More Analyst Ratings for TILE
View the Latest Analyst Ratings

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