Newsletter Login

Username:

Password:


Need help logging in?

New Subscriber?
Start Here!

Stock Spotlight

Floor supplier has high ceiling

Recent Price
$200
Dividend
$0.00
Yield
0.0%
P/E Ratio
16
Shares (millions)
75
Long-Term Debt as % of Capital
17%
52-Week Price Range
$216.58 - $148.56


In the weeks leading up to Mohawk Industries' ($200; MHK) September-quarter report, investors braced for the worst. Shares of Mohawk, a maker of flooring products, had slumped since the end of September as a litany of building suppliers posted disappointing results and cut guidance.

Not helping matters, Mohawk entered the reporting season with a spotty record for managing analyst sales expectations, having topped the consensus in just three of the prior 10 quarters.

On virtually all accounts, the company surpassed expectations. Mohawk earned $3.50 per share excluding one-time charges, up 17% and $0.04 above the consensus. Sales climbed 7% to $2.29 billion, narrowly ahead of the consensus. For the December quarter, management expects per-share profits of $3.16 to $3.25, implying 12% to 15% growth. The consensus stood at $3.16 per share at the time of the announcement.

The stock has surged 12% since Mohawk's quarterly report and now trades roughly in line with medians for the S&P 1500 consumer-discretionary sector and home-furnishings industry. But the shares still look unusually cheap versus their own history. At 16 times trailing earnings, the stock trades 18% below its three-year average P/E ratio.

Mohawk is a Focus List Buy and a Long-Term Buy.

Business breakdown

Mohawk manufactures carpet, rugs, ceramic tile, stone, and hardwood flooring. Management estimates the North American flooring industry is expanding 3% to 4% this year and anticipates similar growth in 2017.

Mohawk's recent operating momentum extends across all three of its segments. The international flooring unit (21% of sales and 26% of operating income for the nine months ended September) has helped drive growth in 2016, with operating income surging 71% on 39% higher revenue. North American flooring (43%, 36%) increased operating profit 150% on a 6% sales increase, while the global ceramics business (36%, 38%) posted 15% higher operating profits and 5% higher sales.

All three segments fattened their operating profit margins last quarter, as productivity gains and higher utilization overcame a weaker product 
mix and modest inflation in raw-materials prices. Management sees opportunities to pry margins wider in 2017, especially for its ceramics business. To help counter higher costs, Mohawk also plans to raise prices on carpeting in North America 3% to 5% in January.

Most of the company's factories are running at or near capacity, including several new facilities. The company projects capital spending will rise nearly 30% to a record $650 million in 2016, likely increasing further next year. The bulk of the capital investments are going toward capacity expansion, followed by productivity improvements and maintenance. With its leverage at historically low levels, Mohawk will also consider pursuing multiple acquisitions at the same time to broaden its product portfolio and geographic footprint.

An annual report for Mohawk Industries Inc. is available at 160 S. Industrial Blvd., Calhoun, GA 30701; (706) 629-7721; www.mohawkind.com.


 

Mohawk Industries

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Sep '16
$3.50
vs.
$2.98
7%
$216.58
-
$183.90
19 - 16
Jun '16
3.47
vs.
2.69
13%
201.78
-
177.34
19 - 16
Mar '16
2.38
vs.
1.70
15%
193.59
-
148.56
19 - 15
Dec '15
2.82
vs.
2.27
2%
201.88
-
180.00
21 - 19

 
Year (Dec)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2015
$8.07
$10.20
$0.00
$212.16
-
$151.15
21 - 15
2014
7.80
8.15
0.00
158.58
-
120.37
19 - 15
2013
7.35
6.55
0.00
149.01
-
91.30
23 - 14
2012
5.79
3.78
0.00
93.95
-
57.62
25 - 15

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
91
70
79
95
72
64
26

* Earnings exclude special items.
NA Not Available.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

More Investment Newsletters and Services

Drip Investor

DRIP Investor — how you can buy dividend-paying stocks without a broker.

Visit us at DRIP Investor, your source for dividend reinvestment plans.

Lazy Investor

The Lazy Investor — free weekly e-letter that delivers market updates and stock market information via email.

Visit us at The Lazy Investor, our free investment newsletter.

Horizon Investment

Horizon — registered investment advisor seeks to provide investors at all stages the ability to build, preserve and enjoy wealth.

Visit us at Horizon Investment Services to get started in an investment program that's right for you.

Upside

Upside — discovers today's small and midcap stocks poised to be tomorrow's Blue Chip leaders.

Visit us at Upside, your guide to the best buys in small and midcap stocks.

Current Hotline

Friday, December 2, 2016

U.S. stocks have moved lower this week despite mostly solid economic data

Read More from the Hotline

Stock Spotlight

Floor supplier has high ceiling

Wednesday, November 30, 2016

In the weeks leading up to Mohawk Industries' ($200; MHK) September-quarter report, investors braced for the worst. Shares of Mohawk, a maker of flooring products, had slumped since...

Read More from Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com