Masco (MAS) Rides On Higher Repair & Remodeling Activity

Increasing demand for new home construction and repair, remodeling products bode well for Masco Corporation (NYSE:MAS) . Along with it, cost-saving initiatives and divestures at regular intervals to accelerate growth are expected to drive profits.

Key Growth Drivers

Given the housing end market’s steady improvement, there is an increasing demand for new home construction and repair, remodeling products in all channels of distribution and across the price range. The momentum is expected to continue which in turn will improve demand for Masco’s products. Rising housing prices are also giving a boost to consumer confidence in home investments.

More than 80% of Masco’s revenues are generated through repair/remodel activity. Masco’s growth in the last few quarters has mostly been driven by steadily growing repair and remodel activity.

The positive momentum is evident from the company’s results in the first nine months of 2017. The company’s net sales increased 3.1% driven by solid contribution from its Plumbing Products (up 5%) and Decorative Architectural Products (up 4%) segments. Strong demand from repair and remodeling products across all channels of distribution led to a 3% increase in North American sales in the first nine months of 2017.

Notably, the company’s Plumbing Products segment continues to be strong, particularly in North America, as it gained market share with its high-end showroom products and saw strong growth in eCommerce sales across both pure-play online retailers and omni channel partners.

Overall, the company has been witnessing strong demand for its market leading brands. It is one of the leading cabinet manufacturers in the United States and holds one of the largest shares in faucets. Its popular brands include KraftMaid and Merillat cabinets, Delta and Hansgrohe faucets, Behr paint, and Milgard windows.

Apart from strong demand, Masco’s effective cost-saving initiatives help it in boosting profit level that include business consolidations, system implementations, plant closures, branch closures, improvement in the global supply chain and headcount reductions. Masco’s adjusted gross profit increased 5.5% year over year in the first nine months of 2017 and gross margin expanded 80 basis points over the time period. Operating margin increased 40 bps, on an adjusted basis, over the said period.

Again, Masco regularly divests its less profitable and underperforming businesses to focus on its core areas in a bid to accelerate growth and improve shareholder value. In the second quarter of 2017, Masco completed the divestiture of its Arrow Fastener business for $126 million.

Although the recent hurricanes have negatively impacted the last reported quarter, delaying deliveries and installation schedules, Masco’s prospects remain bright given the expectations of continued momentum in housing industry banking on improving economy, low unemployment levels and positive consumer confidence.

Masco’s shares have gained 26.3% year to date, outperforming the industry’s growth of 17.7%. Estimates for the current quarter and year have remained stable over the last seven days.

Nevertheless, increasing demand for repair and remodeling and new product launches are key growth drivers for this Zacks Rank #3 (Hold) company.

Stocks to Consider

A few better-ranked stocks in the same space are Patrick Industries, Inc. (NASDAQ:PATK) , United Rentals, Inc. (NYSE:URI) and Aspen Aerogels, Inc. (NYSE:ASPN) .

Patrick Industries sports a Zacks Rank #1 (Strong Buy) and is likely to witness a rise of 24.5% in earnings for the current year. You can see the complete list of today’s Zacks #1 Rank stocks here.

United Rentals, also a Zacks Rank #1 stock, is expected to witness 22.1% growth in earnings this year.

Aspen Aerogels, a Zacks Rank #2 stock, is expected to witness 50% growth in current quarter earnings.

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