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Leggett (LEG) on Growth Path Amid Risks: Should You Hold?
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Leggett & Platt, Incorporated (LEG - Free Report) remains focused on improving its business portfolio by increasing investment in areas that provide a competitive edge and exiting underperforming operations and markets. Moreover, the company continues to benefit from its long-term strategic plan, alongside having an impressive earnings history.
Leggett has successfully completed the first two parts of its strategic plan, which focused on divesting low-performing businesses and improvement in margins as well as returns. Management is now progressing well with its third part of the plan, which aims to achieve top-line growth of 4–5% annually. We believe Leggett has significant operating leverage to accomplish this phase, as it has a considerable amount of retained spare production to meet the demand of $4 billion.
Additionally, the stock appears compelling from the earnings perspective. Leggett’s bottom line has notably outperformed the Zacks Consensus Estimate for five straight quarters, as it posted third-quarter 2016 results. Moreover, in the trailing four quarters it has an average beat of 12.4%.
Alongside, Leggett has always maintained a disciplined capital allocation strategy as well as enhances shareholder returns via dividends and share buybacks. Also, the company is rationalizing its capital expenditures, including store-remerchandising efforts. We believe that its strong liquidity position is likely to drive growth, moving ahead.
On the flip side, Leggett’s top line continued to be hurt by the impact of divestitures, lower volumes, decline in commodity prices and currency woes. We noted that the company has posted lower-than-expected sales in the past six quarters. In the first, second and third quarters of 2016, its top line fell 6%, 4% and 3%, respectively. Going forward, management expects most of these factors to linger over 2016 sales.
Moreover, significant global presence exposes the company to various other risks associated with its operations internationally, specifically during adverse currency movements. Raw material price deflation and stiff competition also pose significant threats to the company.
Bottom Line
We observed that this Zacks Rank #3 (Hold) stock has marginally outperformed the Zacks categorized-Furniture industry, which occupies space in the top 50% of the Zacks Classified industries. In the past one year, the company’s shares have increased 28% compared with the Zacks categorized industry’s gain of 26%. Also, estimates have been largely stable ahead of the fourth-quarter earnings release. In addition, the stock exhibits a VGM Score of “B”, which indicates its growth potential.
La-Z-Boy Incorporated, with an average beat of 5.7% in the trailing four quarters, has gained 35.4% in the past one year.
Masonite International has posted a positive earnings surprise in all of the last four quarters by an average of 28.1%. Moreover, the stock has increased 14.9% in the past one year.
The Children's Place, with a long-term earnings growth rate of 10.3% has surged a whopping 61.7% in the past one year.
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Leggett (LEG) on Growth Path Amid Risks: Should You Hold?
Leggett & Platt, Incorporated (LEG - Free Report) remains focused on improving its business portfolio by increasing investment in areas that provide a competitive edge and exiting underperforming operations and markets. Moreover, the company continues to benefit from its long-term strategic plan, alongside having an impressive earnings history.
Leggett has successfully completed the first two parts of its strategic plan, which focused on divesting low-performing businesses and improvement in margins as well as returns. Management is now progressing well with its third part of the plan, which aims to achieve top-line growth of 4–5% annually. We believe Leggett has significant operating leverage to accomplish this phase, as it has a considerable amount of retained spare production to meet the demand of $4 billion.
Leggett & Platt, Incorporated Price and Consensus
Leggett & Platt, Incorporated Price and Consensus | Leggett & Platt, Incorporated Quote
Additionally, the stock appears compelling from the earnings perspective. Leggett’s bottom line has notably outperformed the Zacks Consensus Estimate for five straight quarters, as it posted third-quarter 2016 results. Moreover, in the trailing four quarters it has an average beat of 12.4%.
Alongside, Leggett has always maintained a disciplined capital allocation strategy as well as enhances shareholder returns via dividends and share buybacks. Also, the company is rationalizing its capital expenditures, including store-remerchandising efforts. We believe that its strong liquidity position is likely to drive growth, moving ahead.
On the flip side, Leggett’s top line continued to be hurt by the impact of divestitures, lower volumes, decline in commodity prices and currency woes. We noted that the company has posted lower-than-expected sales in the past six quarters. In the first, second and third quarters of 2016, its top line fell 6%, 4% and 3%, respectively. Going forward, management expects most of these factors to linger over 2016 sales.
Moreover, significant global presence exposes the company to various other risks associated with its operations internationally, specifically during adverse currency movements. Raw material price deflation and stiff competition also pose significant threats to the company.
Bottom Line
We observed that this Zacks Rank #3 (Hold) stock has marginally outperformed the Zacks categorized-Furniture industry, which occupies space in the top 50% of the Zacks Classified industries. In the past one year, the company’s shares have increased 28% compared with the Zacks categorized industry’s gain of 26%. Also, estimates have been largely stable ahead of the fourth-quarter earnings release. In addition, the stock exhibits a VGM Score of “B”, which indicates its growth potential.
Key Picks
Better-ranked stocks include La-Z-Boy Inc. (LZB - Free Report) , Masonite International Corp. (DOOR - Free Report) and The Children's Place, Inc. (PLCE - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
La-Z-Boy Incorporated, with an average beat of 5.7% in the trailing four quarters, has gained 35.4% in the past one year.
Masonite International has posted a positive earnings surprise in all of the last four quarters by an average of 28.1%. Moreover, the stock has increased 14.9% in the past one year.
The Children's Place, with a long-term earnings growth rate of 10.3% has surged a whopping 61.7% in the past one year.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>