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Masco Stock Rises 27% in 3 Months: Join the Rally or Watch Carefully?
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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 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.
In the past three months, Masco’s stock has gained 27.4% comparing favorably with the Zacks Building Products – Miscellaneous industry, the broader Construction sector and the S&P 500 index’s growth of 16.4%, 18.9% and 1.5%, respectively.
Image Source: Zacks Investment Research
Technical indicators also remain favorable, with MAS trading comfortably above its 50-day moving average.
Image Source: Zacks Investment Research
MAS stock also outpaced its competitors like Armstrong World Industries, Inc. (AWI - Free Report) , Owens Corning (OC - Free Report) and Advanced Drainage Systems, Inc. (WMS - Free Report) , which rallied 20.7%, 11.2% and 1.3%, respectively, in the past three-month period.
What’s Driving MAS Stock?
Improved Operating Efficiency: 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.
Operating margin in the second quarter of 2024 grew 10 bps. For 2024, the company expects adjusted operating margin to be in the range of 17-17.5%, up from 16.8% in 2023. It expects an adjusted operating margin of 19% for the Plumbing Products segment and 18% for the Decorative Architectural Products unit in 2024, up from 18% and 17.8%, respectively, a year ago.
The company expects to achieve long-term full-year margin targets of nearly 18.5% in 2026, where Plumbing Products are likely to grow approximately 20% and Decorative Architectural Products are likely to rise 19-20%. This apart, it plans to return shareholders 1-2% above earnings per share (EPS) growth via dividends and 2-4% through repurchases.
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.
For example, Hansgrohe's AXOR brand showcased new products like the Citterio C bathroom collection and AXOR ShowerSelect ID at the Milan Furniture Fair. These innovations underscore Hansgrohe's leadership in premium, energy-efficient bathroom solutions, bolstering its Plumbing segment's global market position through strong brands and innovative offerings.
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. The company foresees robust growth, expecting to achieve an average annual organic sales growth of 3-5% over the long term. Acquisitions are projected to contribute 1-3% annually to sales.
Driving Shareholders’ Value: During the first half of 2024, Masco returned $290 million to shareholders through the repurchase of 4.1 million shares and $128 million via dividend.
Again, the company increased its dividend six times in the past five years, and its payout has increased 24.1% over the same period. MAS is currently paying an annual cash dividend of $1.16 per share, which translates to a payout ratio of around 29%, higher than the industry’s average of 20.4%. MAS’ dividend history here.
Historical Performance, Prospect & Returns
Masco’s strong financial performance is backed by solid earnings surprises in recent quarters. Its EPS surpassed the consensus estimate in the trailing four quarters, with the average surprise being 11.5%.
The company’s 2024 and 2025 EPS estimates reflect impressive growth of 6.5% and 9.3%, respectively. It has a long-term EPS growth rate of 7.8%. With a VGM Score of B, MAS is well-positioned to continue outperforming the market in the near term.
Return on Equity or ROE is an important measure to see how a company makes use of its equity and the returns are generated on it. Masco’s trailing 12-month ROE is double that of the industry as a whole, as visible in the chart below.
Image Source: Zacks Investment Research
What's Holding Masco Back?
Weak Demand: Masco has been witnessing slowness in demand for many of its products for quite some time now. The trend remains the same. The company believes that markets will stabilize toward the end of 2024 and return to typical growth rates in 2025 and 2026. Demand in Europe and China is still challenged and appears to be stabilizing in later 2024. The company maintains cautious optimism for the remainder of 2024 and expects sales to remain up/down by low single digits.
Meanwhile, Masco’s business prospects are highly correlated with U.S. housing market conditions and repair and remodeling activity, with higher interest/ mortgage rates, affordability continues to be a concern for homebuyers.
High Expenses: Masco and the overall industry have been witnessing intense inflationary pressure over the last few quarters. Owing to lower net sales from lower volumes, adjusted selling, general and administrative (SG&A) expenses — as a percentage of net sales — expanded 130 bps to 18.5% in second-quarter 2024. Adjusted SG&A expenses — as a percentage of net sales — rose 130 basis points in the second quarter due to high employee-related costs.
Should You Buy Masco Now or Wait?
Investors should consider holding onto this Zacks Rank #3 (Hold) company due to prevailing weak demand and high cost. Its focus on cost savings initiatives, disciplined pricing, and operational efficiencies will help the company continue to drive operating margin improvement and EPS growth in 2024. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite outperforming the industry and sector, valuation looks grim, with a forward 12-month price-to-earnings ratio of 18.82X, slightly above the industry average of 17.53X.
Refraining from initiating new positions in MAS at this time can help mitigate exposure to uncertainties, allowing investors to wait for a more favorable entry point or a clearer trajectory for the company's performance.
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Masco Stock Rises 27% in 3 Months: Join the Rally or Watch Carefully?
Masco Corporation (MAS - Free Report) is well-poised for growth, given its sustained focus on operational efficiency, investment in new products 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.
In the past three months, Masco’s stock has gained 27.4% comparing favorably with the Zacks Building Products – Miscellaneous industry, the broader Construction sector and the S&P 500 index’s growth of 16.4%, 18.9% and 1.5%, respectively.
Image Source: Zacks Investment Research
Technical indicators also remain favorable, with MAS trading comfortably above its 50-day moving average.
Image Source: Zacks Investment Research
MAS stock also outpaced its competitors like Armstrong World Industries, Inc. (AWI - Free Report) , Owens Corning (OC - Free Report) and Advanced Drainage Systems, Inc. (WMS - Free Report) , which rallied 20.7%, 11.2% and 1.3%, respectively, in the past three-month period.
What’s Driving MAS Stock?
Improved Operating Efficiency: 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.
Operating margin in the second quarter of 2024 grew 10 bps. For 2024, the company expects adjusted operating margin to be in the range of 17-17.5%, up from 16.8% in 2023. It expects an adjusted operating margin of 19% for the Plumbing Products segment and 18% for the Decorative Architectural Products unit in 2024, up from 18% and 17.8%, respectively, a year ago.
The company expects to achieve long-term full-year margin targets of nearly 18.5% in 2026, where Plumbing Products are likely to grow approximately 20% and Decorative Architectural Products are likely to rise 19-20%. This apart, it plans to return shareholders 1-2% above earnings per share (EPS) growth via dividends and 2-4% through repurchases.
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.
For example, Hansgrohe's AXOR brand showcased new products like the Citterio C bathroom collection and AXOR ShowerSelect ID at the Milan Furniture Fair. These innovations underscore Hansgrohe's leadership in premium, energy-efficient bathroom solutions, bolstering its Plumbing segment's global market position through strong brands and innovative offerings.
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. The company foresees robust growth, expecting to achieve an average annual organic sales growth of 3-5% over the long term. Acquisitions are projected to contribute 1-3% annually to sales.
Driving Shareholders’ Value: During the first half of 2024, Masco returned $290 million to shareholders through the repurchase of 4.1 million shares and $128 million via dividend.
Again, the company increased its dividend six times in the past five years, and its payout has increased 24.1% over the same period. MAS is currently paying an annual cash dividend of $1.16 per share, which translates to a payout ratio of around 29%, higher than the industry’s average of 20.4%. MAS’ dividend history here.
Historical Performance, Prospect & Returns
Masco’s strong financial performance is backed by solid earnings surprises in recent quarters. Its EPS surpassed the consensus estimate in the trailing four quarters, with the average surprise being 11.5%.
The company’s 2024 and 2025 EPS estimates reflect impressive growth of 6.5% and 9.3%, respectively. It has a long-term EPS growth rate of 7.8%. With a VGM Score of B, MAS is well-positioned to continue outperforming the market in the near term.
Return on Equity or ROE is an important measure to see how a company makes use of its equity and the returns are generated on it. Masco’s trailing 12-month ROE is double that of the industry as a whole, as visible in the chart below.
Image Source: Zacks Investment Research
What's Holding Masco Back?
Weak Demand: Masco has been witnessing slowness in demand for many of its products for quite some time now. The trend remains the same. The company believes that markets will stabilize toward the end of 2024 and return to typical growth rates in 2025 and 2026. Demand in Europe and China is still challenged and appears to be stabilizing in later 2024. The company maintains cautious optimism for the remainder of 2024 and expects sales to remain up/down by low single digits.
Meanwhile, Masco’s business prospects are highly correlated with U.S. housing market conditions and repair and remodeling activity, with higher interest/ mortgage rates, affordability continues to be a concern for homebuyers.
High Expenses: Masco and the overall industry have been witnessing intense inflationary pressure over the last few quarters. Owing to lower net sales from lower volumes, adjusted selling, general and administrative (SG&A) expenses — as a percentage of net sales — expanded 130 bps to 18.5% in second-quarter 2024. Adjusted SG&A expenses — as a percentage of net sales — rose 130 basis points in the second quarter due to high employee-related costs.
Should You Buy Masco Now or Wait?
Investors should consider holding onto this Zacks Rank #3 (Hold) company due to prevailing weak demand and high cost. Its focus on cost savings initiatives, disciplined pricing, and operational efficiencies will help the company continue to drive operating margin improvement and EPS growth in 2024. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite outperforming the industry and sector, valuation looks grim, with a forward 12-month price-to-earnings ratio of 18.82X, slightly above the industry average of 17.53X.
Refraining from initiating new positions in MAS at this time can help mitigate exposure to uncertainties, allowing investors to wait for a more favorable entry point or a clearer trajectory for the company's performance.