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American Woodmark: A Strong Buy

AMWD MAS

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A solid year-to-date return of 85.8%, robust second-quarter fiscal 2013 results and rising estimates aided American Woodmark Corporation (AMWD - Snapshot Report) to attain a Zacks #1 Rank (Strong Buy) on November 21, 2012. This manufacturer and distributor of cabinets and vanities outperformed the Zacks Consensus Estimates in 5 out of 8 quarters. The company has topped estimates by an average of 55.4% over the last 8 quarters.

The Rank Drivers

Improvement in new home construction activities and the company’s sturdy financial results coupled with earnings momentum are the rank drivers for this stock.

On November 20, American Woodmark posted second-quarter fiscal 2013 earnings of 14 cents a share. The quarterly earnings not only surpassed the Zacks Consensus Estimate of 5 cents by 180%, but significantly rebounded from a loss of 21 cents delivered in the year-ago quarter. Results benefited primarily from top-line growth.

Net sales increased 24% from the year-ago quarter to $159.8 million, driven mostly by over 40% sales growth in the new home construction business. Total revenue also came ahead of the Zacks Consensus Estimate of $140 million. The company distributes its products through two sales channels: Home Center and New Construction.

Gross profit margin expanded 300 basis points to 15.5% on the back of rise in sales volume and lower fixed overhead expenses.

Soaring Earnings Momentum

The Zacks Consensus Estimate for fiscal 2013 has moved up by 58.3% to 38 cents over the last 30 days, suggesting a year-over-year increase of 150.3%. For fiscal 2014, the Zacks Consensus Estimate jumped 25.6% to 98 cents over the same time frame, representing a year-over-year surge of 155.2%.

Valuation

American Woodmark currently trades at a forward P/E of 67.72x, reflecting a 229.4% premium to the peer group average of 20.56x. Also, on a price-to-book basis, the shares trade at 2.78x, a substantial premium to the peer group average of 1.02x. Again, its price-to-sales ratio of 0.67 is at a premium to the peer group average of 0.44. Given the company's strong fundamentals, the premium valuation is justified.

Company Description

Founded in 1980 and headquartered in Winchester, Virginia, American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for the remodeling and new home construction markets. The company’s leading brands include American Woodmark, Timberlake, Shenandoah Cabinetry, Potomac and Waypoint Living Spaces. The company, which primarily competes against Masco Corporation (MAS - Analyst Report), has a market cap of $376.1 million.

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