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Bear of the Day: Mohawk Industries (MHK)

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Mohawk Industries, Inc. (MHK - Free Report) stock has fallen nearly 60% during the past year, which coincided with its industry’s 50% downturn. Looking ahead, the flooring powerhouse’s earnings appear to be headed down, with analyst sentiment also trending in the wrong direction.

Overview

Mohawk is one of the world’s biggest flooring companies, with operations from the U.S. to India. The company’s offerings include rugs, carpets, ceramic tile, laminate, wood, stone, and vinyl flooring. Mohawk’s brands include Daltile, Durkan, Feltex, Godfrey Hirst, along with its namesake brands, and many more.

Price Movement

As we mentioned at the start, Mohawk stock has tanked roughly 60% during the last 12 months, which is even worse than its industry’s 50% average downturn. This is also far worse than the S&P 500’s 6.4% decline.

MHK stock closed regular trading Thursday down 1.26% at $115.50 per share, which marked a 59% downturn from its 52-week high of $282.21 a share. We can, however, see that Mohawk stock had been on an impressive run over the last decade until its recent selloff.

Valuation

Moving on, we should note that Mohawk’s valuation picture appears relatively solid at the moment. MHK is currently trading at 10X forward 12-month Zacks Consensus EPS estimates. This marks a discount compared to the S&P’s 15.1X average, but comes in slightly above its industry’s 7.8X.

Plus, Mohawk has traded as high as 20.4X over the last year, with a one-year median of 13.2X. Therefore, we can say with some confidence that MHK stock is hardly stretched at the moment. Yet, a solid forward P/E doesn’t mean as much if it’s not accompanied by solid growth.

Outlook

With that said, our current Zacks Consensus Estimate calls for Mohawk’s Q4 revenues to pop 3.48% to reach $2.45 billion. This would mark a slight downturn from Q3’s 4% climb. Meanwhile, the company’s fiscal 2018 revenues are projected to jump by 5.1% to reach $9.98 billion.

Peeking ahead to fiscal 2019, Mohawk’s top line is projected to climb 4.3% above our current year estimate. Clearly, these are not dismal revenue growth estimates. But the company’s earnings outlook is a very different story.

Earnings Trends 

Turning to the bottom end of the income statement, the flooring giant’s adjusted Q4 earnings are expected to tumble 26.3% to $2.52 a share. On top of that, MHK’s current full-year earnings are projected to sink 9.5%. And a 2019 bottom-line bounce back doesn’t appear to be in the cards at the moment, with Mohawk’s adjusted full-year earnings projected to slip nearly 5% below our 2018 projection.

Worse still, Mohawk has received a ton of negative earnings estimate revisions recently, as the chart below shows us. This means that at least some analyst are more pessimistic about MHK’s earnings picture than they used to be.

Bottom Line

Mohawk’s recent downward earnings estimate revisions help the company earn a Zacks Rank #5 (Strong Sell). MHK also sports a “D” grade for both Growth and Momentum in our Style Scores system.

Furthermore, investors interested in the Textile–Home Furnishing industry might want to hold off for now since most of Mohawk’s peers are all either Zacks Rank #4 (Sell) or #3 (Hold) stocks. Investors might instead turn to Restoration Hardware (RH - Free Report) , which is currently a Zacks Rank #1 (Strong Buy), in order to capture the broader home furnishings market.

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