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Armstrong World Up 47% in a Year: What's Behind the Rally?

Zacks Equity Research
Updated

Shares of Armstrong World Industries, Inc. AWI have surged around 47% in the last year. The company has also outperformed its industry’s growth of roughly 19% as well as S&P 500's gain of 13%.

 

The price surge can be attributed to strong repair and remodel activity along with the continued positive new building construction activity. Further, productivity improvements in plants and focus on restructuring activities bode well for the company.

 

Armstrong World has a market capitalization of roughly $3.1 billion. Average volume of shares traded in the last three months is around 423k.

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Let’s take a look into the factors that are driving this Zacks Rank #3 (Hold) stock.

 

 

Driving Factors

 

Strong Q1: Armstrong World delivered 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 (average unit value).

 

Upbeat Outlook: 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 of more than 10% for the year, on the back of 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%. 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.

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Construction Activity, Investment in Products to Drive Results: The company’s results will be aided by strong repair and remodel activity, as well as the continuation of positive new building construction activity. 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, the company concluded the purchase of Tectum, which accelerated its penetration into specialty ceilings and walls. 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.

 

Estimates Moving North: Positive estimate revisions reflect optimism in the company's potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. 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 year-over-year growth of 22.5%. 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%.

 

Stocks to Consider

 

Some better-ranked stocks in the same sector include Caterpillar Inc. CAT, Axon Enterprise, Inc. AAXN and W.W. Grainger, Inc. GWW. These stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

 

Caterpillar’s earnings estimates for full-year 2018 have increased by 7% to $10.58 per share in the last 30 days while estimates for 2019 rose 8% to $12.03 per share. Its shares have gone up 50% over the past year.

 

Axon Enterprise also witnessed positive estimates revisions for fiscal 2018 and 2019. The Zacks Consensus Estimate for fiscal 2018 has soared 98% to 81 cents per share in the last 30 days while estimates for fiscal 2019 climbed by 50% to $1.02 per share. Its shares have soared 148% over the past year.

 

Both the fiscal 2018 and fiscal 2019 consensus for Grainger has moved up 2% to $14.90 per share and $16.79 per share, respectively, in the last 30 days. The company carries a Zacks Rank #1. Its shares have surged 76% in the past year.

 

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Armstrong World Industries, Inc. (AWI) : Free Stock Analysis Report
 
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