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Bear of the Day: American Woodmark (AMWD)

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American Woodmark Corporation (AMWD - Free Report) is facing cost pressures across multiple channels. This Zacks Rank #5 (Strong Sell) is struggling as more tariffs loom.

American Woodmark makes kitchen, bath and home organization products for the remodeling and new home construction markets including kitchen cabinets and vanities.

It operates 18 manufacturing facilities in the United States and Mexico and 7 primary service centers located throughout the United States.

Big Miss in the Fiscal Second Quarter

On Nov 29, American Woodmark reported its fiscal second quarter 2019 results and missed the Zacks Consensus by $0.29. Earnings were $1.60 versus the consensus of $1.89.

Excluding the RSI Home Products acquisition, which closed on Dec 29, 2017, sales were up 8% to $297.7 million and the company saw growth across all channels.

However, it is getting crushed across multiple channels as costs rise in logistics, which is transportation, labor, and materials. In materials, it continues to see increases in hardwood, plywood and paint.

Then the tariffs are another added cost on top of that.

American Woodmark is still looking to mitigate the impacts that a possible 25% tariffs would have on its business but it can't mitigate it all.

Estimates Slashed

With fiscal 2019 still remaining a challenge due to the cost pressures, the analysts moved to cut their fiscal 2019 and fiscal 2020 earnings estimates.

2 estimates were cut in the last month for fiscal 2019 pushing the Zacks Consensus down to $6.92 from $7.62. That's still earnings growth of 32% compared to fiscal 2018, however.

2 estimates were also slashed for fiscal 2020, pushing the 2020 Zacks Consensus Estimate down to $8.07 from $8.66. That's 16.6% earnings growth.

Shares At 2-Year Lows

Investors have been fleeing the housing and remodeling stocks since the summer of 2018. If a recession is coming, who wants to own them?

Shares of American Woodmark are no exception. They have plunged 52% year-to-date and are at 2-year lows.

They're cheap, with a forward P/E of just 9 but it's not clear when the inflationary pressures will moderate.

Masco (MAS - Free Report) , which also makes cabinets as well as windows and plumbing products for the same home remodeling and construction market, also missed on its last earnings report and is a Zacks Rank #4 (Sell) as its full year estimates have also been cut.

If you're looking to invest in the home remodeling industry, you are better off taking a look at the retailers like Home Depot (HD - Free Report) or Lowe's (LOW - Free Report) as both of those are Zacks Rank #3 (Hold) stocks.

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