JPMorgan analyst Michael Rehaut downgrades Owens Corning (OC) to Underweight from Neutral while upgrading Mohawk Industries (MHK) to Neutral from Underweight. His top picks in Building Products remain Stanley Black & Decker (SWK) and Fortune Brands (FBHS). Rehaut's conversations with both the buy-side and sell-side point to an "overly optimistic view" of Owens Corning's earnings power this year, both as it relates to the potential benefit in its Roofing segment from IMO 2020, as well as the growth prospects across its other segments. The analyst downgrades the shares and notes his estimates are well below the Street. Rehaut's upgrade of Mohawk to Neutral follows the stock's "material" level of underperformance since 2018, which he believes results in a "reasonable to relatively inexpensive valuation."
Wells Fargo analyst Deepa Raghavan raised the firm's price target on Masco (MAS) to $70 from $65 and keeps an Overweight rating on the shares. The analyst notes Masco is achieving price-cost neutrality by Q4 and is earlier than its competitor Fortune Brands (FBHS) -- a positive optic.
RBC Capital analyst Mike Dahl raised the firm's price target on Owens Corning to $97 from $94 but keeps a Sector Perform rating on the shares. The analyst cites the company's Q3 earnings beat and better than feared by the Buy-side Q4 outlook, adding that its pricing is also supporting even though inflation will likely accelerate and weigh on margins into the first half of next year.
Consensus $11.54. Donald Allan president and CFO, commented, "Our updated full year 2021 guidance calls for organic revenue growth of 16% - 17% and, at the midpoint, adjusted EPS expansion of 22% versus prior year and 31% versus 2019. Our new round of price increases and surcharges to address the cost inflation that built rapidly in the third quarter will begin to offset higher costs exiting this year and provides the setup for higher margins and operating profit growth in 2022. We are maintaining our investment levels to support our growth catalysts, accelerate our margin resiliency initiatives and expand the supply chain to deliver significant revenue growth in 2022 and beyond."
Baird analyst Timothy Wojs raised the firm's price target on Fortune Brands to $120 from $115 and keeps a Neutral rating on the shares. The analyst said the shares should trade higher following its Q3 report and while implied Q4 guidance is below the Street, he thinks the quarter/outlook was better than feared.
Expects the U.S. residential housing market and global commercial and industrial markets to remain strong in the near term. General corporate expenses are estimated to be between $150M-$155M. Capital additions are expected to be approximately $460M. Depreciation and amortization is estimated to be approximately $500M. Interest expense is now estimated to be $125M-$130M vs. previous estimate of $120M-$130M. Estimates an effective tax rate of 26% to 28%, and a cash tax rate of 18% to 20%, both on adjusted pre-tax earnings.
Previous view $5.65-$5.85. The Company expects to continue outperforming a fundamentally strong housing market. The Company now anticipates delivering full-year sales growth in the range of 24.5 percent to 25.5 percent, or 17.5 percent to 18.5 percent excluding the LARSON acquisition. This reflects the Company's revised assumptions of a global home products market now expanding by approximately 11 percent to 12 percent, including growth in the U.S. home products market of approximately 12 percent to 13 percent. The Company now expects EPS before charges / gains for the full year to be in the range of $5.63 to $5.73, representing an increase at the midpoint of 36 percent versus a year ago. For 2021, the Company expects to generate free cash flow of approximately $625 to $675 million. "Our business remains well positioned to achieve our long-term goals," said Patrick Hallinan, chief financial officer, Fortune Brands. "While the near-term backdrop has become increasingly dynamic, we have the talent and capabilities to overcome these challenges. We continue to see high consumer demand and multiple pathways for earnings growth. Our balance sheet remains strong, and we have the ability to deploy capital to pursue the best returns for our shareholders."
Reports Q3 revenue $2B, consensus $1.94B. "Our teams produced very strong results in an extremely challenging environment," said Nicholas Fink, chief executive officer, Fortune Brands. "Demand remains strong across our portfolio and our investments in innovation, capacity, and digital transformation continue to accelerate the value proposition behind our world-class brands. While supply chain and labor availability headwinds have increased, we are addressing these challenges head-on. We continue to develop and deploy our Fortune Brands Advantage capabilities to further reduce complexity and increase our efficiencies in global sourcing. These actions will help offset these near-term headwinds while also increasing our ability to invest further. The steps we are taking position the Company for continued outperformance and will contribute to achieving our long-term goals in this elongating and expanding housing market."