Armstrong World Industries, Inc.
(AWI - Free Report
) will gain from average unit value (AUV) improvement, focus on restructuring activities and investment in new products as well as the Tectum acquisition.
Of late, share price of this stock has also been rising. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
Strong Q1, Upbeat Guidance
Armstrong World reported adjusted earnings of 79 cents per share in first-quarter 2018 compared with 74 cents reported in the prior-year quarter. Net sales increased 3% year over year to $227 million, driven by higher Architectural Specialties volumes and higher Mineral Fiber AUV.
For 2018, the company maintained net sales growth in the range of 5-7% aided by a modest upturn in volume, AUV improvement in Mineral Fiber segment and continued double-digit sales gains in the Architectural Specialties segment. It anticipates EBITDA improvement more than 10% for the year, driven by sales gain, productivity improvements in plants and impact of announced restructuring activities.
The company raised EPS guidance to a range of $3.60-$3.82, reflecting year-over-year growth of 19-27%. Its results will also be aided by strong repair and remodel activity, as well as the continuation of positive new building construction activity. The guidance hike is a result of $70 million of share repurchases in the first quarter, which reduced outstanding share count to 52 million from 53 million previously.
Return on Assets (ROA)
Armstrong World currently has a ROA of 8.4%, higher than the industry's 3.3%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
The company outperformed the industry
it belongs to in the past year. While the stock has rallied 35%, the industry gained 15%.
Higher Inventory Turnover Ratio
In the trailing 12 months, the inventory turnover ratio for Armstrong World has been 6.71 compared with the industry’s level of 2.99. A higher inventory turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness.
Value Growth Momentum (VGM) Score
This Zacks Rank #2 (Buy) stock has a VGM score
of B. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choices.
Earnings Estimate Revisions
Investors should also consider the positive trends on the estimates revision front. Analysts have been raising their estimates of Armstrong World lately, resulting in a favorable earnings picture. In the past 30 days, the Zacks Consensus Estimate for 2018 and 2019 moved up 6% and 2% to $3.70 and $4.28, respectively.
The Zacks Consensus Estimate for 2018 projects a 22.5% year-over-year growth. For 2019, earnings are expected to improve 15.6% year over year.
The company has an estimated long-term earnings growth rate of 17.3%.
Growth Drivers in Place
Since its separation from the flooring business in 2016, Armstrong World has been strategically investing in new products, sales and support services, and advanced manufacturing capabilities. In January 2017, Armstrong World closed the purchase of Tectum, which accelerated its penetration into specialty ceilings and walls.
Throughout 2017, its team integrated Tectum into the Armstrong platform, and the results have exceeded expectations. Now having fully integrated the business, it can begin making modest capital investments to further enhance capabilities and profitability in this product line. Moreover, continued sales leverage and capital investments at Tectum will enable its Architectural Specialty business to expand margins in 2018 and beyond.
Other Stocks to Consider
PGT Innovations has an expected long-term growth rate of 19%. Its shares have appreciated 59% in a year’s time.
Installed Building Products has an expected long-term growth rate of 30%. Its shares have gone up 23% in a year’s time.
Sterling Construction has an expected long-term growth rate of 11%. Its shares have gone up 25% in a year’s time.
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