Is Leggett & Platt a purchase under $ 40?

Leading engineered components maker Leggett & Platt (LEG) generated record third quarter sales of $ 1.3 billion. However, given that the company’s finances continue to be negatively affected by supply chain constraints and inflationary pressure, is it worth betting on the stock at its current price point? Read on. – StockNews

Diversified manufacturer Leggett & Platt, Incorporated (LEG), in Los Angeles, manufactures and produces bedding, furniture, residential furniture and other miscellaneous technical components. A substantial increase in raw material prices, strategic acquisitions and a return to normal seasonal levels of demand in Europe helped the company achieve record third quarter sales growth.

Its shares have climbed 4.1% in the past five days. However, LEG’s stock fell 8.1% in the last month and 14.4% in the last three months to close its last trading session at $ 39.57.

While LEG’s resilient business model and sales growth across various lines of business bode well for the stock, several macroeconomic headwinds, including high commodity prices, high transportation costs, and constraints on the market. supply chain, could be of concern. In addition, the company’s narrowed outlook for the year 2021 and declining volumes across all business segments could hamper its growth and hurt investor confidence.

Here is what could influence the performance of LEG in the coming months:

Headwinds macro

LEG continues to face multiple macroeconomic challenges which negatively impacted the company’s sales volume and EBIT during its final quarter. Its volume fell 6%, mainly due to supply chain constraints hampering the bedding and automotive markets. Additionally, challenges related to foam chemicals shortages and labor availability could hurt the company’s profits and revenues. In addition, higher transport costs and price increases related to raw materials due to the increase inflation could threaten its growth in the short term.

Lukewarm quarterly performance

In the third quarter, ended November 1, 2021, LEG sales increased 9% year-on-year to $ 1.32 billion, driven by a 13% increase in commercial sales in the Bedding Products segment and to an increase of 12% in the Furniture, Flooring and Textile Products segment. However, the company’s gross profit fell 5% from the previous year quarter to $ 256.1 million, while its EBIT fell 4%. Its net profit fell 9% year-on-year to $ 97.2 million, while EPS was down 10% from the previous year quarter to $ 0.71.

LEG’s free cash flow from operating activities was $ 50.1 million for the quarter, compared to $ 261.3 million for the same period last year. And its Specialty Products adjusted EBIT margin fell 550 basis points year-on-year to 9.5%.

Updated assessment

LEG’s forward EV / EBITDA ratio of 9.46 times is 7.6% below the industry average of 10.24. And in terms of non-GAAP forward P / E, the company’s 14.44x compares to the industry average of 14.60. And its futures price / sales 1.05x is 11.1% higher than the industry average 1.18x.

POWR ratings reflect uncertainty

LEG has an overall rating of C, which translates to Neutral in our POWR odds system. POWR scores are calculated by considering 118 separate factors, each factor being weighted to an optimal degree.

Our proprietary scoring system also rates each stock against eight distinct categories. LEG has a D grade for growth. Analysts’ expectation that the stock’s EPS will drop 3.9% in the current quarter is in line with the rating.

In terms of a Sentiment rating, the company has a C. Additionally, LEG has a Momentum rating of C, which is consistent with its price performance over the past month.

In addition to the ratings I have highlighted, one can check out additional LEG ratings for quality, stability and value here. LEG is ranked # 49 out of 61 stocks in the B rating Home improvement and property industry.

Final result

While LEG experienced 8% organic sales growth in the third quarter due to higher commodity selling prices, a significant drop in its volume and EBIT margin could dampen its growth as it continues. to tackle problems in its supply chain. In addition, rising costs induced by inflationary pressures could add more uncertainties to its path. Thus, we believe that investors should wait for the company to better master the challenges.

How does Leggett & Platt (LEG) compare to its peers?

While LEG has an overall C (Neutral) rating in our proprietary rating system, one may want to benchmark its industry peers with A (Strong Buy) ratings: Acuity Brands, Inc. (AYI), Duluth Holdings Inc. (DLTH) and Masonite International Corporation (GATE).

LEG shares remained unchanged in pre-market on Monday. Year-to-date, LEG is down -7.47%, compared to a 27.55% increase in the benchmark S&P 500 over the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with a passion for financial research and writing. She started her career with Kantar IMRB, a leading market research and consumer advisory organization.


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