Masco (MAS) to Gain From Operational Efficiency and Expansion
The Federal Reserve's decision to stabilize interest rate signals optimism for the housing market and related industry players like Masco Corporation MAS. The Federal Open Market Committee (FOMC) has kept interest rates at a 22-year high of 5.25-5.5%, with hints potential rate cuts by the end of 2024. This stability is a relief for the overall housing industry.
Apart from this, Masco is likely to gain from strong pricing actions and operational efficiency strategies. The company is well-positioned for robust long-term growth, thanks to its market-leading brands, acquisition synergies and strong liquidity position.
Shares of this installer and distributor of home improvement and building products have improved 18.5% in the past six months compared with the Zacks Building Products – Miscellaneous industry’s 23% growth.
Image Source: Zacks Investment Research
The Zacks Rank #2 (Buy) company’s 2024 earnings and sales are likely to witness year-over-year growth of 6.7% and 1.2%, respectively. Earnings estimates for 2024 have increased from $3.93 to $3.98 per share in the past 60 days, depicting analysts’ optimism regarding the stock’s growth potential.
Growth Catalysts
Operational Efficiency Strategies: MAS pursues cost-saving measures through initiatives like business consolidations, system implementations, plant and branch closures, global supply-chain enhancements and headcount reductions. These efforts aim to achieve annual savings by reducing corporate expenses and simplifying the organizational structure. During the third quarter of 2023, adjusted operating margin improved 170 basis points year-over-year to 17.6% due to a favorable price/cost relationship and cost savings initiatives partially offset by lower volumes.
For 2023, the company expects adjusted operating margin to be 16.5% (earlier expectation was 16%), up from 15.6% in 2022. It now expects adjusted operating margin to be 17.5% for Plumbing and Decorative Architectural Products segments, up from 17% projected earlier, due to its cost-saving initiatives.
The company plans to implement pricing measures to counter the impact of raw material inflation. To address tariff challenges, MAS collaborates with suppliers and internal teams to explore cost-reduction opportunities and has initiated the relocation of limited production from China as a long-term solution.
Focus on Expansion to Drive Growth: Masco continues to expand its portfolio with acquisitions. In third-quarter 2023, the company acquired all the share capital of Sauna360 Group Oy. The product portfolio of Sauna360 includes traditional, infrared and wood-burning saunas along with steam showers. The business is included within its Plumbing Products segment.
Masco, through its various divisions and extensive product range, holds a significant share in the faucets market. Its Behr brand holds the top position in the DIY architectural coatings market. In the first half of 2023, the firm expanded its presence by securing additional shelf space in adjacent product categories, launching new products, and investing in PRO paint business, portraying strength of the Behr brand.
Strong Long-Term Prospect: The current positive trends in the housing market and improving mortgage rates are likely to support MAS in achieving its long-term goals. It expects to generate 3-5% average annual sales growth organically. Acquisitions are likely to contribute 1-3% yearly in sales. It anticipates a 10% average annual EPS growth, supported by operating margin expansion through cost productivity and volume leverage. On the back of a strong balance sheet position, it plans to return shareholders 1-2% above EPS growth via dividends and 2-4% through repurchases.
Other Key Picks
Some other top-ranked stocks from the Zacks Construction sector are:
Fluor Corporation FLR currently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter earnings surprise of 37.5%, on average. FLR shares have gained 14.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for FLR’s 2023 sales and earnings per share (EPS) suggests growth of 12.4% and 197.6%, respectively, from the year-ago period’s reported levels.
M-tron Industries, Inc. MPTI presently flaunts a Zacks Rank of 1. MPTI delivered a trailing four-quarter earnings surprise of 35.6%, on average. It has surged 288.2% in the past year.
The Zacks Consensus Estimate for MPTI’s 2023 sales and EPS indicates growth of 30.6% and 156.7%, respectively, from the previous year’s reported levels.
AECOM ACM currently carries a Zacks Rank of #2. It has a trailing four-quarter earnings surprise of 2.1%, on average. ACM shares have risen 9.6% in the past year.
The Zacks Consensus Estimate for ACM’s 2024 sales and EPS indicates increases of 4.5% and 17.5%, respectively, from the year-ago period’s reported levels.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Fluor Corporation (FLR) : Free Stock Analysis Report
Masco Corporation (MAS) : Free Stock Analysis Report
AECOM (ACM) : Free Stock Analysis Report
M-tron Industries, Inc. (MPTI) : Free Stock Analysis Report
