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Mohawk Hits 52-Week High

Zacks Equity Research

Shares of Mohawk Industries Inc (MHK) hit a 52-week high of $150.26 on Jan 03 and eventually closed at $149.45. Shares of this global flooring manufacturer have been rising since it reported strong third quarter fiscal 2013 results on Nov 1, 2013.

The company’s long-term estimated earnings per share (EPS) growth rate is 29.70%. Average volume of shares traded over the last three months came in at approximately 1,034K.

Better-Than-Expected Results

Mohawk Industries delivered solid third quarter results on Nov 1, where adjusted earnings of $2.02 per share soared 94% from the prior-year adjusted earnings of $1.04. The results also beat the Zacks Consensus Estimate of $1.91 per share by 5.8%. The upswing was due to strong top-line growth and improved operating efficiencies.

Net sales increased 33% on a year-over-year basis to $1.962 billion, driven by higher U.S. volumes, efficiency improvements and the performance of the Pergo, Marazzi and Spano acquisitions.

The company’s adjusted operating margin improved 350 basis points to approximately 11% in the third quarter, resulting from enhanced product mix from innovative new collections, improved manufacturing and distribution efficiencies and the implementation of new systems and processes. Despite significant marketing investments for new product launches, adjusted SG&A ratio also improved 130 basis points owing to cost containment measures.

We believe improved U.S. housing market recovery, new-home construction and remodeling have helped fuel growth and encouraged the company to bolster its presence outside the U.S. In May 2013, Mohawk wrapped up its buyout of Belgian panel board maker Spano Group, while in April 2013 the company completed its purchase of tile maker Marazzi Group. In Jan 2013, it completed its buyout of laminate flooring maker Pergo.

While these acquisitions have contributed to the company’s top-line, Mohawk in return is also employing initiatives to improve the performance of these acquisitions, including implementing new strategies and organizational structures, upgrading marketing tactics and product lines, and reducing costs through closure of high cost assets.

Most recently, the rating agency Moody's, a unit of Moody’s Corporation (MCO) upgraded Mohawk Industries’ senior unsecured rating to Baa3 owing to its strong operating performance and credit metrics and as well as expectation for continued improvement. Moody’s also announced that it expects the company’s revenues to increase with the gradual recovery in the housing market, strength in consumer spending patterns and increased demand in both commercial and residential markets. Moody’s believes that the continued expansion in the international flooring markets will also drive revenues in the upcoming quarters.

Mohawk currently holds a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the wider retail sector include G-III Apparel Group, Ltd. (GIII) with a Zacks Rank #1 (Strong Buy) and Hanesbrands Inc. (HBI) with a Zacks Rank #2 (Buy).

Read the Full Research Report on MCO
Read the Full Research Report on HBI
Read the Full Research Report on GIII
Read the Full Research Report on MHK

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