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Leggett (LEG) Focuses on Strategic Growth: Should You Hold?

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With persistent focus on making investments to develop its business portfolio, strategic initiatives to drive growth and a disciplined capital allocation strategy, Leggett & Platt, Incorporated (LEG - Free Report) remains confident of achieving its long-term growth targets. Also, the company is progressing well with its long-term strategy of achieving 4%–5% top-line growth annually.

Leggett remains on track with its long-term strategic plan, which was announced in Nov 2007. Notably, the company has successfully completed the first two parts of its strategic plan. The first part was to divest low-performing businesses while the second focused on an improvement in margins and returns. Currently, the company is executing the third part of the plan, which aims at achieving top-line growth. We believe Leggett has significant operating leverage to accomplish this phase of the plan.

Additionally, the company is making investments in areas that provide it with a competitive edge. Some of the recent steps taken to enhance its business portfolio include the acquisition of a minor stake in an Asian automotive joint venture, buying three U.S. innerspring component production facilities of Tempur Sealy, and expansion in China to sustain rapid growth of its automotive business.

Alongside maintaining a disciplined capital allocation strategy, Leggett uses excess cash to undertake shareholder-friendly moves. Notably, in May 2016, the company raised its quarterly dividend, thus marking its 45th straight annual hike and highlighting its commitment to shareholders. Moreover, Leggett is rationalizing its capital expenditures, including store-remerchandising efforts to improve its return on investment. We believe that the company’s strong liquidity position will continue to drive growth.

However, Leggett’s significant global presence exposes it to adverse currency movements. Moreover, stiff competition poses significant threats. While the company provided a conservative sales outlook for 2016, it continues to anticipate generating record earnings per share, robust operating margin and enhanced cash flows this year.

LEGGETT & PLATT Price and Consensus

Given the pros and cons embedded in the stock, Leggett currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Some better-ranked stocks in the retail sector include American Woodmark Corp. (AMWD - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) and Masonite International Corporation (DOOR - Free Report) .

American Woodmark has gained nearly 11% in the past 12 months and outpaced the Zacks Consensus Estimate by an average of 33.1% in the trailing four quarters. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Eagle Outfitters, also a Zacks Rank #1 stock, has a long-term earnings growth rate of 11.8%. The stock has jumped over 11% year to date.

Masonite International, which carries a Zacks Rank #2 (Buy), has surpassed the Zacks Consensus Estimate by an average of 32.4% in the trailing four quarters.

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