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Masco (MAS) Surges 48% in Six Months: More Room to Run?

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Masco Corporation (MAS - Free Report) is well-poised for growth given its sustained focus on operational efficiency, investment in new products, strong pricing actions and inorganic drive. This apart, the company is well-positioned for robust long-term growth, thanks to its market-leading brands, acquisition synergies and strong liquidity position.

This Livonia, MI-based home improvement and building products provider’s shares have gained 47.6% over the past six months, in line with the Zacks Building Products – Miscellaneous industry’s 48% growth.

The company currently carries a Zacks Rank #2 (Buy) and has a long-term earnings growth rate of 8.7%, which speaks of its inherent strength. The growth prospect of Masco is further solidified with a VGM Score of A, backed by a Value Score of B and a Growth Score of A.

The Zacks Consensus Estimate has witnessed an uptrend over the past 60 days as analysts raised their estimates, depicting optimism about the stock’s growth potential. Over the said time frame, the Zacks Consensus Estimate for 2024 earnings per share (EPS) has increased to $4.12 from $3.98. The estimated figure indicates 6.7% year-over-year growth.

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Let’s delve deeper.

Driving Factors

Cost-Control Efforts: Masco's diligent cost-saving efforts have significantly bolstered its performance. Through strategic measures such as consolidating businesses, implementing efficient systems, closing plants and branches, optimizing the global supply chain, and reducing headcount, Masco has achieved substantial annual savings while simplifying its organizational structure.

To combat challenges like raw material inflation and tariffs, Masco has taken proactive steps, including implementing pricing adjustments and collaborating with suppliers and internal teams to identify cost-saving opportunities. Moreover, the company has initiated the relocation of some production out of China for long-term sustainability.

The tangible results of these efforts are evident in Masco's financial performance. In 2023, the company's adjusted operating margin surged 120 basis points year over year to 16.8%. This improvement was primarily driven by a favorable price/cost dynamic and the successful implementation of cost-saving initiatives despite facing lower volumes. Looking ahead to 2024, Masco anticipates further enhancement in its adjusted operating margin to 17%, with specific segments, such as Plumbing Products, expecting an impressive adjusted operating margin of 18.5% and the Decorative Architectural Products unit aiming for 18%. These outcomes underscore the significant benefits derived from Masco's stringent cost-control efforts.

Focus on New Products: With its superior repair and remodel-focused products dominating multiple distribution channels, alongside its robust financial position and prudent capital management, Masco is well-positioned to consistently generate lasting value for its shareholders in the foreseeable future. In 2023, the company secured additional shelf space in adjacent product categories, launched new products and invested in the PRO paint business, portraying the strength of the Behr brand. The PRO paint business within the Decorative Architectural segment continues to gain a significant share of the market. Masco launched adjacent paint categories like aerosols, interior stains, and caulks and sealants within PRO that added to the results in 2023. The company plans to increase investment in people and capabilities in 2024.

Solid Long-Term Goal: Despite facing challenges such as slowing housing demand and industry-wide issues, Masco remains optimistic about its long-term growth prospects. The company foresees robust growth, expecting to achieve an average annual organic sales growth of 3-5%. Additionally, acquisitions are projected to contribute 1-3% annually to sales.

Masco is confident in its ability to deliver strong earnings growth, targeting an average annual EPS growth of around 10%. This growth will be supported by the expansion of operating margins through cost productivity improvements and leveraging volume. Furthermore, Masco aims to reach its long-term full-year margin targets, aiming for nearly 18.5% by 2026. Within this target, the Plumbing Products segment is expected to grow by approximately 20%, while the Decorative Architectural Products segment is anticipated to rise 19-20%.

In addition to growth-oriented strategies, Masco is committed to delivering value to its shareholders. The company plans to return 1-2% above EPS growth to shareholders through dividends and 2-4% through share repurchases. These comprehensive plans underscore Masco's dedication to driving both growth and shareholder returns in the foreseeable future.

Acquisitions: Masco's portfolio expansion through acquisitions persists with the recent acquisition of all share capital of Sauna360 Group Oy in the third quarter of 2023. Sauna360 offers a diverse product portfolio, including traditional, infrared, and wood-burning saunas, as well as steam showers. This acquisition has been integrated into Masco's Plumbing Products segment.

Other Key Picks

Some other top-ranked stocks that warrant a look in the sector are as follows:

Advanced Drainage Systems, Inc. (WMS - Free Report) currently sports a Zacks Rank of 1 (Strong Buy). WMS delivered a trailing four-quarter earnings surprise of a whopping 37.1%, on average. The stock has risen 45.7% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Advanced Drainage Systems’ 2024 EPS has increased to $6.19 from $5.88 over the past 30 days.

Armstrong World Industries, Inc. (AWI - Free Report) currently flaunts a Zacks Rank of 1. AWI delivered a trailing four-quarter earnings surprise of 13.1%, on average. Shares of the company have surged 69.7% in the past six months.

The Zacks Consensus Estimate for Armstrong World Industries’ EPS for 2024 has increased to $5.74 from $5.65 over the past 30 days.

Vulcan Materials Company (VMC - Free Report) currently sports a Zacks Rank #1. This aggregate producer has a trailing four-quarter earnings surprise of 19.5%, on average.

Shares of VMC have rallied 29.9% in the past six months. Estimates for VMC’s EPS for 2024 have increased to $8.37 from $8.33 over the past 30 days.

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