Back to top

Image: Bigstock

Bull of the Day: Interface (TILE)

Read MoreHide Full Article

Interface (TILE - Free Report) is the largest manufacturer of modular carpet for commercial and residential applications. The company offers modular carpets and carpet tiles for use in commercial interiors, including offices, healthcare facilities, airports, educational and other institutions, hospitality spaces, and retail facilities, as well as residential interiors. The company is based in Atlanta, Geogia and employs over 3,300 employees. The stock is Zacks Rank #1 (Strong Buy) and todays Bull of the Day.

Interface has a market cap of $1 Billion with a Forward PE of 14. The stock sports Zacks Style Scores of “B” in both Value and Momentum. In addition, the company also sits in an industry that is ranked 34 out of 265 (Top 13%) in the Zacks Industry Rank.  

Q2 Earnings

Interface reported Q2 in late July, seeing $0.32 versus the $0.28 expected. Revenue came slightly above expectations at $248.2 million verse $248 million. Gross margins ticked up to 39.9% verse 38.4% last year.  

CEO Daniel Hendrix had some comments on margins: “For the sixth quarter in a row, we posted a triple digit year over year increase in gross margin, which was up 150 basis points to a quarterly record 39.9%. The improvement in gross margin offset nearly all of the 6% decline in revenue, and we kept SG&A expenses in check while continuing to invest in growth platforms such as market development and new product introductions.

Investors applauded the report. Sending TILE up 12% the day after earnings. The stock has since sold off back to pre-earnings levels, putting it at attractive levels. The next earnings report is October 26th and due to rising estimates and its surprise history, there is reason to believe Interface can repeat the move higher.

Surprise History

Last week’s beat was the second straight and the seventh over the last eight quarters. If the company can continue to beat the stock will try to repeat the move it saw in early 2015. This move saw the stock at its current levels, then went all the way to $26, a move of 50% in six months.

Relative Strength in the Sector

In addition to individual performance, the sector offers a great way to play housing. Suntrust points out that the STRH Building Products Index has outperformed the home builders and the S&P 500 in 2016.  Suntrust expects this to continue and has a $22 price target for TILE.

Estimates

Since the company reported estimates have been revised higher across all timeframes. Over the last 60 days, estimates for the current quarter are up 10%, from $0.29 to $0.32. For fiscal year 2016, estimates have gone 7.4% higher, from $1.08 to $1.16.

As the earnings approach keep an eye on what estimates are doing to give clues to how the quarter might pan out.

In Summary

Tile isn’t the most exciting company, but it offers a way into the hot building products secor with a nice setup. Entry over the $16 level allows for a good risk/reward opportunity. A trade can be executed here above $16 with a stop $14 (2016 lows) and a target of $22, or 37%.

Note: Want more articles from this author? Scroll up to the top of this article and click the FOLLOW AUTHOR button to get an email each time a new article is published.

Confidential from Zacks

Beyond this Bull of the Day, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now >>.


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Interface, Inc. (TILE) - free report >>