Is Masco Corp (MAS) Fairly Valued? A Comprehensive Analysis
The stock of Masco Corp (NYSE:MAS) has seen a daily gain of 1.31%, and a 3-month gain of 7.5%, with an Earnings Per Share (EPS) of 3.54. This raises an intriguing question: Is the stock fairly valued? In this article, we delve into the valuation analysis of Masco (NYSE:MAS). We invite you to read on for an insightful exploration.
About Masco Corp (NYSE:MAS)
Masco Corp (NYSE:MAS) is a renowned manufacturer of home improvement and building products. The company's $5.3 billion plumbing segment, led by the Delta and Hansgrohe brands, sells faucets, showerheads, and other related plumbing fixtures and components. The $3.4 billion decorative architectural segment primarily sells paints and other coatings under the Behr and Kilz brands, but it also sells builder hardware and lighting products. As of August 18, 2023, Masco's stock price is $57.19, with a market cap of $12.90 billion. The company's GF Value, an estimation of fair value, is $62.72.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Masco (NYSE:MAS) appears to be fairly valued. At its current price of $57.19 per share and the market cap of $12.90 billion, Masco stock appears to be fairly valued. As Masco is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength of Masco
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Masco has a cash-to-debt ratio of 0.12, which ranks worse than 85.48% of companies in the Construction industry. Based on this, GuruFocus ranks Masco's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Masco
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Masco has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $8.20 billion and Earnings Per Share (EPS) of $3.54. Its operating margin of 15.55% is better than 87.06% of companies in the Construction industry. Overall, GuruFocus ranks Masco's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Masco's 3-year average revenue growth rate is better than 82.63% of companies in the Construction industry. Masco's 3-year average EBITDA growth rate is 13.4%, which ranks better than 66.08% of companies in the Construction industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Masco's ROIC was 30.45, while its WACC came in at 8.52.
Conclusion
In conclusion, the stock of Masco Corp (NYSE:MAS) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 66.08% of companies in the Construction industry. To learn more about Masco stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
