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Bear of the Day

Leggett & Platt, Inc.'s (LEG) fourth-quarter 2011 earnings of $0.22 per share were up from the prior-period level, but we believe it was inorganic growth primarily spurred by the company's share buyback program. Moreover, during the quarter, Leggett's gross margin contracted 90 basis points to 16.7% due to higher input costs.

Further, the company's operating margin shriveled 470 basis points to 1.5% due to increased selling and administrative expenses. we believe that intense competition from global and regional players, volatility in raw material prices and exposure to adverse foreign currency translations may undermine the company's future growth prospects and profitability.

Currently, we are maintaining a long-term Underperform recommendation on the stock. Our target price of $20.00, 15.3x 2012 EPS, reflects this view.

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