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RPM International (RPM) Up 15.6% in the Last 6 Months: Here's Why

·4 min read

RPM International Inc.’s RPM stock rallied 15.6% in the past six months against the Zacks Paints and Related Products industry, the Zacks Construction sector and S&P 500 index’s 6.6%, 7.1% and 6.3% respective fall.

The company has been riding high on its strategically balanced business model and operational initiatives. Also, strong construction and industrial maintenance activity, bolt-on acquisitions and scaled up in-house resin production add to the positive.

However, RPM and other construction players like Arcosa, Inc. ACA, Gibraltar Industries, Inc. ROCK and Primoris Services Corporation PRIM are witnessing raw material, freight and wage inflation, supply chain disruption, higher interest rates, currency headwinds as well as Russia-Ukraine war impacts.

Defying these industry woes, this Zacks Rank #3 (Hold) company’s profitability is likely to remain intact, thanks to its focus on market opportunities and industry trends, like rebounding restoration and energy markets. Increased investment in growth initiatives and manufacturing capacity, price increases to offset cost woes and Consumer Group turnaround bode well.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Let’s delve into the factors helping the company to drive growth.

Solid Q4 FY’22 Result & Prospect: RPM International’s adjusted earnings increased 10.9% and net sales rose 13.7% from the prior-year level as all four segments generated record fourth-quarter sales. Adjusted EBIT for the reported quarter also moved up 11.7% from the prior year period. Of the four segments, three produced record quarterly adjusted EBIT driven by pricing adjustments and operational efficiencies.

For first-quarter fiscal 2023, RPM International expects total net sales to increase in the mid-teens. The company also expects sales growth in the mid-teens for all its operating segments. Particularly, the Consumer Group is likely to generate the highest growth of the four segments, backed by selling price increases, improved alkyd resin supply and investments in operations. Consolidated adjusted EBIT is expected to increase 20-25% year over year.

The Zacks Consensus Estimates for the first quarter and fiscal 2023 suggest 23.2% and 17.8% yearly growth in adjusted earnings, respectively. The same for net sales reflects 14.9% and 8% year-over-year growth in the first quarter and fiscal 2023, respectively.

Implementation of MAP 2025: After successfully completing the 2020 Margin Acceleration Plan or MAP to Growth Plan (launched in fiscal 2018 and formally concluded on May 31, 2021), RPM recently unveiled a MAP 2025 (Margin Achievement Plan) operational improvement initiative.

RPM International expects to accelerate growth, maximize operational efficiencies and generate superior value for its customers, associates and shareholders via MAP 2025. By May 2025 end, RPM projects to achieve $8.5 billion of annual revenues, 42% gross margin and 16% adjusted EBIT margin.

Accretive Acquisitions: Acquisitions have been an important part of RPM’s growth strategy. During fiscal 2022, the company increased the cash used for investment activities by $66.9 million to $259.5 million. During fiscal 2022, the company completed eight acquisitions in three segments. Most notably, it acquired a chemical manufacturing facility in Corsicana, TX, within the CPG segment. Also, it acquired a Clearwater, FL-based indoor air quality solutions provider.

The company made four buyouts in fiscal 2021, three in fiscal 2020, five in fiscal 2019 and seven in fiscal 2018. Acquisitions added 1.4% to net sales in fiscal 2022.

Discussion of Above-Mentioned Stocks

Arcosa, currently sporting a Zacks Rank #1, is a manufacturer of infrastructure-related products and services, serving construction, energy and transportation markets.

ACA’s expected earnings growth rate for 2022 is 7.8%. The Zacks Consensus Estimate for current-year earnings has improved 13.7% over the past 30 days.

Gibraltar, currently carrying a Zacks Rank of 2 (Buy), is benefiting from its three-pillar value creation strategy, the strong housing market and solid demand for legacy and TerraSmart businesses.

ROCK’s expected earnings growth rate for 2022 is 18.7%. The Zacks Consensus Estimate for current-year earnings has remained stable over the past 60 days.

Primoris, a Zacks Rank #2 company, is a specialty contractor company operating in the United States and Canada. A robust backlog of more than $4 billion and solid contract awards in the Energy/Renewables and Utilities segments imply incredible momentum in the future despite supply-chain and permitting challenges. Utility-scale solar projects continued to drive progress in the Energy/Renewables segment.

PRIM’s earnings for 2022 are expected to grow 18.4%. The Zacks Consensus Estimate for current-year earnings has improved 4% in the past 30 days.


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