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On January 8, Zacks Investment Research upgraded Mohawk Industries Inc. (MHK - Snapshot Report) to a Zacks Rank #1 (Strong Buy). Improving housing market, geographical expansion, product innovation, and operating efficiencies are the rank drivers for this stock.

Why the Upgrade?

Mohawk Industries has been witnessing rising earnings estimates on the back of housing market recovery in the U.S. Moreover, this floor products supplier posted robust third quarter 2012 results, including an earnings surprise of 1.96%. The long-term expected earnings growth rate for this stock is 20.0%.

On November 1, Mohawk Industries reported third quarter results with adjusted earnings of $1.04 per share surpassing the year-ago earnings of 83 cents by 25%. Improvements in product mix, pricing, volume and productivity boosted earnings in the quarter.

Net sales grew 2% year over year to $1.473 billion but lagged the Zacks Consensus Estimate of $1.478 billion. The gain stemmed from product innovations, acquisitions and operating efficiencies.

Following the third quarter beat, all the estimates were revised upwards for both 2012 and 2013. The Zacks Consensus Estimate for 2013 increased 2.1% over the last 60 days.

Besides, Mohawk has a strong financial position and therefore looks for geographic expansion. With the acquisition announcement of Pergo in October-end, the company expects to capture the most recognized brand of premium laminate flooring in the U.S. and Europe. The company has also announced its plans to acquire the Marazzi Group, which will make Mohawk the worldwide leader in ceramic tile. Marazzi Group has a significant presence in all its major geographies, including Russia, the United States, Italy, France and Spain.

The demand for new homes and improved sales of existing homes in the U.S. provide a positive outlook for future flooring growth. Moreover, the company is focusing on pricing to combat raw material inflation. The company expects its fourth quarter adjusted earnings in the range of 89 to 98 cents per share, up from the fourth quarter earnings of 72 cents in the prior-year.

Another Stock to Consider

Another stock in the sector, Interface, Inc is worth considering,  despite carrying a Zacks Rank #3 (Hold) .

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