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Here's Why You Should Hold RPM International (RPM) Stock Now

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RPM International Inc. (RPM - Free Report) has been benefiting from increased infrastructure spending, and strategic buyouts. Also, the implementation of MAP 2025 operational improvement initiatives added to its growth.

These strategies helped RPM to report decent fourth-quarter fiscal 2023 results, wherein earnings and revenues surpassed the Zacks Consensus Estimate. Although earnings declined on a year-over-year basis, revenues grew. The uptrend was driven by strong demand for engineered solutions in infrastructure and reshoring-related capital projects.

Shares of RPM have gained 26% in the past three months compared with the industry’s growth of 16.7%. Earnings estimates for 2023 have jumped 8.8% in the past 30 days. This depicts analysts' optimism over RPM’s growth prospects. However, cost inflation and foreign exchange woes are concerns.


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Growth Drivers

RPM witnessed strong revenue growth in the fourth quarter of fiscal 2023 from its businesses providing engineered solutions targeting infrastructure and reshoring projects. The U.S. government’s effort to boost the country’s infrastructure has been generating demand for the company’s products.

In the fiscal fourth quarter, sales in North America (contributed 79% to consolidated sales) and Latin America (4%) rose 1.4% and 9.3% year over year, respectively. These regions benefited from strong infrastructure and reshoring-related spending. The Performance Coatings segment witnessed strong backlog and growth because of infrastructure and capital spending.

The implication of MAP 2025 improved RPM International’s operational agility, allowing it to respond quickly to changes in demand. In fourth-quarter fiscal 2023, net sales and adjusted EBIT rose 1.6% and 1.5%, respectively, year over year. The upside was primarily driven by benefits of MAP 2025 and the recovery of consumer margins toward historical averages after supply-chain disruptions in the previous year.

Management anticipates utilizing its MAP 2025 initiatives to further enhance margin expansion. By the end of May 2025, RPM projects to achieve $8.5 billion of annual revenues, 42% gross margin and 16% adjusted EBIT margin.

Acquisitions and divestitures have also been an important part of RPM’s growth strategy. During fourth-quarter fiscal 2023, the company acquired the Construction Products Group businesses in the Middle East, Africa and Southeast Asia and India. RPM is also making investments in new facilities in Southeast Asia and India to support multiple product lines. An increase in infrastructure and capital spending in these regions will facilitate growth for its newly acquired businesses. In fiscal 2023, it completed six small acquisitions.


RPM’s business has been witnessing higher costs and expenses related to restructuring, acquisitions, labor, distribution and freight. Also, persistent supply-chain constraints and acquisitions-related expenses are concerns. RPM incurred $15.5 million of restructuring cost during fiscal 2023, of which $11.7 million were related to MAP 2025 initiative. Going forward, the company expects wage, raw material inflation and reduced fixed-cost leverage to continue into early fiscal 2024.

About 28.5% of RPM’s net sales in fiscal 2023 can be attributed to foreign manufacturing operations. In fourth-quarter fiscal 2023, currency headwinds reduced net sales by 1.4%. A strengthening dollar or any other global economic uncertainty may affect RPM’s operating results in the upcoming periods.

Zacks Rank

RPM International currently carries a Zacks Rank #3 (Hold).

Key Picks

Some better-ranked stocks from the Zacks Construction sector are mentioned below.

TopBuild Corp. (BLD - Free Report) currently sports a Zacks Rank #1 (Strong Buy). BLD has a trailing four-quarter earnings surprise of 14.1%, on average. Shares of BLD have gained 43.2% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BLD’s 2023 sales and earnings per share (EPS) indicates rises of 3.4% and 4.6%, respectively, from the year-ago period’s levels.

EMCOR Group, Inc. (EME - Free Report) flaunts a Zacks Rank #1 at present. It has a trailing four-quarter earnings surprise of 17.2%, on average. Shares of EME have risen 74.3% in the past year.

The Zacks Consensus Estimate for EME’s 2023 sales and EPS suggests growth of 11.5% and 35.9%, respectively, from the year-ago period’s levels.

AECOM (ACM - Free Report) currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 3.6%, on average. Shares of ACM have surged 67% in the past year.

The Zacks Consensus Estimate for ACM’s 2023 sales and EPS indicates gains of 6.3% and 6.9%, respectively, from the year-ago period’s levels.

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