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American Woodmark reported excellent quarterly results buoyed by strong growth in new construction as well as remodeling sales channels. As a result, earnings estimates have surged, sending this cabinet maker to Zacks rank #1 (Strong Buy).
 
About the Company
 
American Woodmark Corporation (AMWD - Snapshot Report) is a leading manufacturer and distributor of kitchen and bath cabinets for remodeling and new home construction markets.
 
The company manufactures cabinets under four major brands:  American Woodmark, Timberlake Cabinetry, Shenandoah Cabinetry and Waypoint Living Spaces and sells more than 435 cabinet lines in a wide variety of design materials and finishes. 
 
Its products are sold through a network of independent dealers and distributors, and directly to major builders and Lowe's and The Home Depot. The company operates 11 manufacturing facilities and 9 builder service centers across the country.
 
Remodeling Activity Continues to Surge
 
While housing markets appeared to be taking a breather of late due to increase in mortgage rates, still tight credit availability and rise in home prices, remodeling activity continued its uptrend. Further, interest rates have come down after the ‘no-taper’ announcement. Per Freddie Mac, fixed mortgage rates are now at their lowest levels in three months. As a result, housing markets may pick up again.
 
Home Improvement/Furniture Industry Keeps Shining
 
The Furniture Industry is currently #12 (out of 265) on the Zacks Industry Rank list, as a result of positive earnings revisions trend.
 
Further, as the economy picks up momentum and the job market heals further, discretionary spending on home improvement products will continue to rise.
 
Excellent Quarterly Results
 
The company reported its first fiscal quarter results on August 20, 2013. Net sales rose by 20% compared with the same quarter of prior fiscal year to $178.1 million. Net income came in at $6.7 million, or $0.43 per share, compared with income of $1.0 million or $0.04 per share for the prior-year quarter.
 
The Company experienced strong gains in both of its sales channels during the quarter, led by new construction sales growth of more than 40%. Remodeling market also recorded a decent mid-single-digit improvement.
 
The company's gross profit margin for quarter was 18.9% of net sales, up from 14.9% in the first quarter of the prior year.
 
Estimates Revisions

 

As a result of strong quarterly report, analysts have raised their estimates for AMWD. Zacks consensus estimate for the current quarter now stands at $0.39 per share up from $0.35 per share, 60 days ago. The consensus estimate for the current year is also up to $1.65 per share from $1.38 per share earlier. Current estimates translate into triple digit earnings growth for the current quarter as well as the fiscal year and double digit growth for next year.

 

Rising estimates sent AMWD back to a Zacks Rank#1 (Strong Buy) on August 23, 2013. AMWD has a solid track of earnings surprises—with an average positive surprise of 142.2% for the last four quarters. 

 
The Bottom Line
 
The housing market continues on its growth trajectory. Inventories of new and existing homes remain at low levels and while mortgage rates have risen from their recent record lows, they are still quite low from historical perspective. Further, with improving job market the demand from remodeling market will also rise going forward.
 
AMWD is a Zacks Rank#1 (Strong Buy) stock. It also has a Zacks recommendation of “Outperform” and looks poised to deliver excellent returns. Further the industry rank of 12 out of 265 indicated a strong likelihood of outperformance in the short- to medium- term.
 
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