Mohawk Industries - Aggressive Growth

Earnings estimates for 

Mohawk Industries, Inc.

 (MHK) have been trending higher along with the housing market. This floor products provider posted robust third quarter results in November, aided by product innovations, acquisitions and operating efficiencies. 

With growing demand for new homes and a long-term expected earnings growth rate of 20.0%, this Zacks #1 Rank (Strong Buy) offers an attractive investment opportunity.

Solid Third Quarter Earnings

On November 1, Mohawk Industries reported third quarter adjusted earnings of $1.04 per share, surpassing the Zacks Consensus Estimate by 2% and last year’s result by 25%. Improvements in product mix, pricing, volume and productivity boosted earnings in the quarter.

Net sales grew 2% year over year to $1.473 billion, but lagged the Zacks Consensus Estimate of $1.478 billion. The gain stemmed from product innovations, acquisitions and operating efficiencies.

Mohawk Industries has a strong financial position and therefore looks for geographic expansion. With the acquisition announcement of Pergo at the end of October, the company expects to capture the most recognized brand of premium laminate flooring in the U.S. and Europe. The company has also announced its plans to acquire the Marazzi Group, which will make Mohawk the worldwide leader in ceramic tile.

The company expects fourth quarter adjusted earnings between 89 cents and 98 cents per share, up from last year’s 72 cents. The demand for new homes and improved sales of existing homes in the U.S. provide a positive outlook for future growth. Moreover, the company is focusing on pricing to combat raw material inflation.

Unanimous Agreement Among Analysts

Over the past 60 days, all 9 earnings estimates for 2012 were revised upwards, lifting the Zacks Consensus Estimate by 1.1% to $3.71 per share. This indicates year-over-year growth of 26.9%. The Zacks Consensus Estimate for 2013 increased 7.2% to $4.94 per share as all 10 estimates moved upward over the same time frame. This reflects a year-over-year increase of 33.4%.

Valuation

Mohawk Industries currently trades at a price-to-book (P/B) multiple of 1.79, reflecting a 14.0% premium to the peer group average of 1.57. The P/S multiple for the stock is 1.12, which is at a premium of 31.8% to the peer group average of 0.85. However, given its strong fundamentals, the premium valuation looks justified.

Shares of Mohawk Industries have been rising since mid-December 2012 and reached a 52-week high of $94.15 on January 3, 2013. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $84.98 and $74.25, respectively. In fact, the stock has been consistently trading above its 50-day and 200-day moving averages since late-December 2012. Volume averages roughly 677K daily.

Mohawk Industries, Inc. is engaged in the production and sale of floor covering products for residential and commercial markets for remodeling and new construction primarily in the United States and Europe. The company provides a complete selection for all markets of carpet, ceramic tile, laminate, wood, stone, vinyl and rugs. The company’s premium brands include Mohawk, Karastan, Lees, Bigelow, Durkan, Daltile, American Olean, Unilin and others. The market cap of the company is $6.43 billion.

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