PGT Innovations (PGTI) Gains as It Sells Stake to Masonite
PGT Innovations, Inc. PGTI is set to be acquired by a designer, manufacturer, marketer and distributor of interior and exterior doors — Masonite International Corporation DOOR — for $3 billion in a combination of cash and Masonite shares.
Per the deal, PGTI’s shareholders will receive $41.00 for each share they own, comprising $33.50 in cash and $7.50 in common shares of Masonite. Also, DOOR’s shareholders will own approximately 84% of the combined company, with PGT Innovations’ shareholders owning nearly 16%.
The transaction is likely to close in mid-2024, subject to approval by PGTI’s shareholders, as well as the receipt of required regulatory approvals and satisfaction of other customary closing conditions.
Expected Transaction Synergies
Post amalgamation, PGT Innovations will provide Masonite with complementary product offerings in adjacent categories, attractive geographies, expanded routes to market and cross-selling opportunities, enhanced engineering and manufacturing capabilities, as well as a significantly stronger growth and financial profile.
On a pro forma basis, for the trailing 12 months ended Oct 1, 2023, the combined company had more than $4 billion in revenues, adjusted EBITDA of approximately $700 million and free cash flow above $400 million.
The transaction is expected to be accretive to Masonite’s earnings in the first full year of ownership and accelerate thereafter with the realization of synergies. Masonite intends to utilize the strength of the combined company’s cash flows and enhanced margin profile to reduce its leverage to less than 3x in nearly two years post completion.
Moreover, Masonite expects to realize approximately $100 million annually for the next several years. These synergies represent a combination of cost-savings opportunities, which include efficiencies in corporate overhead and public company costs, raw material and sourcing opportunities and manufacturing network cost optimization, as well as incremental sales growth opportunities like cross-selling complementary product offerings to an expanded customer base.
Share Price Performance
On Dec 18, PGTI shares spiked 9.4%, whereas DOOR stock dived 16%, post the news release.
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In the past three months, PGTI has gained 48.5% comparing favorably with the Zacks Construction sector's 18.3% growth and S&P 500 index’s 6.5% rise. DOOR has however lost 8.1% in the said time frame.
PGT Innovation currently carries a Zacks Rank #3 (Hold). This Building Products - Miscellaneous industry stock has seen an upward estimate revision of 1.4% and 1.7% for 2023 and 2024 earnings over the past 60 days to $2.16 per share and $2.44 per share, respectively. Its earnings topped the consensus estimate in three of the trailing four quarters and missed on one occasion, the average surprise being 8.4%. It carries an impressive VGM Score of A.
Masonite, a Building Products - Wood company, has a Zacks Rank #3 currently. DOOR has seen a downward estimate revision for 2023 earnings to $7.50 per share from $7.73 over the past 30 days. The same for 2024 has moved down to $9.18 per share from $9.70 in the past seven days.
DOOR’s earnings surpassed estimates in two of the trailing four quarters and missed on two occasions, leading to an average surprise of 4.2%. It carries an impressive VGM Score of A.
Stocks to Consider
Two better-ranked stocks sharing space with PGTI are Frontdoor, Inc. FTDR and James Hardie Industries plc JHX, each sporting a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Frontdoor: Based in Memphis, TN, the company provides home service plans in the United States. The firm is benefiting from impressive customer retention rates. Thanks to the robust awareness of the Frontdoor brand, it has been shifting its attention toward capitalizing on customer demand. This strategic move allows FTDR to redirect its marketing investments toward expanding its Direct-to-Consumer channel under the American Home Shield brand.
The company is committed to establishing a solid foundation by investing in its brand, technology infrastructure and enhancing productivity throughout the organization.
Frontdoor has seen an upward estimate revision of 23% and 23.8% for 2023 and 2024 earnings over the past 60 days to $2.03 and $2.34 per share, respectively. The estimated figure indicates 59.8% and 15.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 163.7%.
James Hardie Industries: The firm pioneered the development of fiber cement technology in the 1980s. JHX has many product applications, including external siding, trim and fascia, ceiling lining and flooring, partitioning, decorative columns, fencing and drainage pipes.
JHX has seen an upward estimate revision of 0.6% and 1.2% for fiscal 2024 and 2025 earnings over the past seven days to $1.58 per share and $1.66 per share, respectively. The estimated figure indicates 16.2% and 5.1% year-over-year growth for fiscal 2024 and 2025, respectively.
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