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Can Carlisle (CSL) Maintain Impressive Momentum Amid Risks?

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Carlisle Companies Incorporated (CSL - Free Report) has managed to impress investors with its recent earnings streak, with the bottom line surpassing the Zacks Consensus Estimates in the trailing four quarters. We expect the company to continue with this momentum backed by healthy prospect in U.S. commercial construction market andimproving Interconnect Technologies business.

Additionally, the company’s diversified product portfolio, diligent restructuring plans and geographical diversity are expected to boost its growth. Carlisle is already witnessing broad-based growth across its segments. In the past six months, shares of Carlisle have outperformed the industry, reflecting investor optimism surrounding the stock. The company has gained 2.8% against the industry’s1.6% decline. Carlisle also enjoys a strong foothold across markets and has several growth drivers.

Considering this backdrop, let’s delve deeper to find out the key factors aiding the stock at the moment.

Factors to Consider 

Carlisle’s diversified business structure enables it to tap opportunities and neutralize operating risks associated with a single market. Of late, one of the company’s major segments — Carlisle Construction Materials (CCM) — has performed exceedingly well. For instance, in the first quarter of 2018, the segment delivered impressive numbers owing to mid-single-digit organic growth led by Accella, Arbo, and Drexel Metals buyouts. Meanwhile, solid recovery of the Carlisle Interconnect Technologies segment through strong SatCom and Aerospace markets has set the tone for solid growth in the future.

Moreover, this Zacks Rank #3 (Hold) company’s global footprint and the ability to penetrate in different markets are commendable. Under the Carlisle’s Vision 2025 program, the company seeks to achieve above-market organic growth, pursue synergistic acquisitions, and further leverage its Carlisle Operating System culture to drive efficiencies through business processes besides continuing to return cash to shareholders. Additionally, Carlisle’s strong liquidity position allows it to pursue acquisitions to augment organic growth. In first-quarter 2018, the company repurchased approximately $129 million of its shares. Generally, such diligent capital deployment strategies boost shareholders’ wealth.

However, Carlisle is susceptible to raw material and freight cost inflation, which in turn, may affect its profitability and margin. For instance, in first-quarter 2018, operating income in the CCM segment declined on a year-over-year basis due to challenging raw material and freight cost environment. Furthermore, the company’s selling and administrative expenses increased 18.9% year over year. Also, the company’s high research and development costs might be a drag on its margin, which in turn, should affect its profitability.

Key Picks

A few better-ranked stocks in the same space are Honeywell International Inc. (HON - Free Report) , Federal Signal Corporation (FSS - Free Report) and Raven Industries, Inc. . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Honeywell outpaced estimates in the preceding four quarters, with an average earnings surprise of 1.49%.

Federal Signal exceeded estimates in the trailing four quarters, with an average positive earnings surprise of 16.07%.

Raven Industries surpassed estimates twice in the trailing four quarters, with an average positive earnings surprise of 9.78%.

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