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Analyst Blog

Leggett & Platt Inc. (LEG - Analyst Report), the manufacturer of diverse engineered products and components, remains on our Neutral list with a price target of $31.00 per share.

Why Reiterate?

We commend Leggett’s consistent endeavors to keep itself on the growth trajectory via acquisitions that would help it augment its top-line performance.

A well-diversified customer base, pricing power and solid research and development (R&D) capabilities facilitate Leggett & Platt to float in the soft economic environment. In order to focus more on its core business operations and improve financial flexibility, the company is continuously taking strategic actions to add new products to its portfolio as per the consumers’ changing preferences while simultaneously divesting low-performing businesses.

Further, we remain impressed by the company’s strong financial base, which enables it to make profitable ventures as well as return value to shareholders. We believe that the company’s sustained focus on adding new products while simultaneously divesting low-performing businesses bode well for future growth.

However, we are disappointed with the company’s third-quarter 2013 performance as earnings declined 4.4% to 43 cents per share impacted by lower sales and negative comps. Results were also impacted by the exclusion of the acquisition gain in the quarter.

Driven by the weak third-quarter performance, the company tweaked its sales and earnings per share guidance for fiscal 2013. The company now expects sales to rise 1% to $3.75 billion, against the previous forecast of $3.75-$3.85 billion. Adjusted EPS is expected to come in the range of $1.50-$1.55, compared with the prior guidance of $1.50-$1.65.

The company’s lowered guidance also pulled down the Zacks Consensus Estimate for fiscal 2013 and 2014. Currently, the Zacks Consensus Estimate for fiscal 2013 and 2014 is pegged at $1.53 and $1.74 per share, respectively, decreasing 1.9% and 1.7%, over the last 30 days.

We also remain concerned about increasing material costs, intense competition and exposure to adverse foreign currency translations. The company operates in a competitive environment and strives to maintain its market share, actively competing with numerous manufacturers and distributors of consumer and commercial products.

Given the pros and cons in the stock we prefer to remain on the sidelines, and maintain our Neutral recommendation.

Other Stocks to Consider

Leggett currently has a Zacks Rank #4 (Sell). However, other well performing stocks in the consumer discretionary sector include Mohawk Industries Inc. (MHK - Snapshot Report), Hanesbrands Inc. (HBI - Analyst Report) and Quicksilver Inc. (ZQK - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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