MHK 012612
Mohawk Industries Inc (MHK)
There are many
industry insiders who believe housing is making a turnaround.
I have yet to agree that the action in housing we are seeing is
substantial in terms of price.
One thing we do
have is new and existing home sales on the rise. This to me
is a positive for a company like Mohawk. Whether you think
that the average consumer is finally buying houses on confidence or
that investors are simply scooping up great deals at rock bottom
prices, both buyers will likely have repairs to make.
The most common and
sometimes most valuable is flooring and that is where Mohawk comes
in.
Company Description &
Developments
Mohawk is a primary supplier of residential and commercial
flooring. The company offers a complete selection of carpet,
ceramic tile, wood, stone, laminate, vinyl, rugs and other home
products.
You may be familiar
with their name brands in the industry, which include Mohawk,
Karastan, Ralph Lauren, Lees, Bigelow, Quick Step, Dal-Tile and
American Olean.
Their flooring is
everywhere; from small boutiques and factory direct shops to major
retailers across the country and the world including Home Depot,
Bloomingdales, Lowe’s, Macy’s, Target, Wal-Mart and more.
Mohawk also runs
its own trucking fleet and operates over 300 local distribution
locations.
Here are some housing numbers to think about:
- Existing Home sales rose 5.0% in December to an annual rate of
4.61 million
- Relative to a year ago, sales are up 3.6%
- Sales of single family homes were up 4.6% to an annual rate of
4.11 million, and were 4.3% above a year ago
- Condo sales were up 8.7% from November to an annual rate of
500,000
- The median price of an existing single family home was down
2.5% from a year ago to 165,100
- The median price of a previously owned condo fell 3.0% to
$160,000.
This tells me that
more homes are changing hands, but still at lower prices. The
bulk of home sales are distressed, existing homes (foreclosures)
that most likely require some “work” to become not just livable,
but appealing to the new buyer.
If the activity is
all investors, chances are they are also going to be replacing
flooring, but most likely using cheaper solutions like
carpet.
Either way, I think
the present environment bodes very well for companies like
MHK. Mohawk’s financials and stock price are beginning to
reflect this thesis after a couple rough earnings
quarters.
Think of them as
the second derivative to a housing and consumer recovery.
Financial Profile
Mohawk is a mid-cap company (4.38 billion) that is trading at about
22 times trailing earnings (P/E). Looking forward, Zacks
Consensus Estimates are calling for that number to drop to 17 with
no change in price from these levels.
Mohawk hit the
Zacks Rank 1 Strong Buy list January 26th, coming from a Zacks Rank
3 about a week ago.
Mohawk reported a
2% quarterly sales decrease at their last earnings report, but
showed year over year sales growth of 10% and a 12% rise in
earnings per share in the same period with total sales of roughly
5.3 billion in FY2010. Mohawk is expected to earn $2.92 in
FY2011 according to the Zacks Consensus Estimate.
Earnings Estimates
Even with several tough quarters, we saw at least one analyst
revise next quarter and next year’s earnings estimates up within
the past month. The others have stood firm on their estimates
to date. Mohawk will report Q4 results on February 23rd.
Expectations are
for Mohawk to generate $0.72 in income this quarter. Of the
11 analysts who cover Mohawk, the consensus is for the company to
grow earnings by 17.85% in FY2011 with another jump of 25.38% in
FY2012.
In terms of the
magnitude of analyst estimate trends, we are seeing all of the
consensus estimates lower than they were 90 days ago from current
quarter, out to FY 2012. Analysts may still make adjustments
ahead of the next report.
Mohawk missed
estimates last quarter by 3.49%, which they warned of. But
the average earnings surprise is still a positive 4.82% over the
past year.
Market Performance & Technicals
Mohawk stock has just recently begun picking up momentum.
October marked the start of a major rally for MHK. The stock
finds itself in a clean, strong bullish channel and has been making
a series of higher highs and lower lows over the past 2
months.
Mohawk’s 52 week
high of $68.86 was made back in May of 2011. MHK has remained
above its 50 day moving average since early October and just
recently jumped above its 200 day moving average which currently
stands at $55.05.
Even with its
struggles in 2011, Mohawk still managed to outpace the S&P 500
by 6% over the past year and almost 15% over the last twelve
weeks. The recent retracement in MHK is healthy if it is
going to continue its bullish momentum.
Jared A Levy is
the Momentum Stock Strategist for Zacks.com. He is also the Editor
in charge of the market-beating Zacks Whisper Trader Service.
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