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Mohawk Industries, Inc. (MHK) recently delivered a solid first-quarter earnings beat thanks to an improving U.S. housing market and expanding profit margins. Analysts revised their estimates significantly higher for both 2013 and 2014 off the Q1 beat, sending the stock to a Zacks Rank No. 1 (Strong Buy). Based on current consensus estimates, analysts expect excellent growth from Mohawk over the next couple of years. With valuation still at reasonable levels, shares of Mohawk offers strong upside potential.

Mohawk Industries is a global flooring manufacturer focused on the production of carpet, rugs, ceramic tile, laminate, wood, stone, and vinyl flooring. Its brands include American Olean, Bigelow, Dal-Tile, Durkan, Karastan, Lees, Marazzi, Mohawk, Pergo, Unilin, and Quick-Step.

First-Quarter Results

Mohawk Industries delivered solid first-quarter results on May 2. Adjusted earnings per share jumped 50% to 87 cents, beating the Zacks Consensus Estimate of 84 cents. Net sales rose 6% to $1.487 billion, driven by strong gains in the Dal-Tile and Unilin segments. The gross profit margin did decline slightly from 25.5% to 25.4% of net sales.

However, the adjusted operating profit margin expanded 140 basis points to 6.5% of net sales as the company leveraged its selling, general and administrative expenses. This led to a stellar 34% increase in adjusted operating income.

Estimates Soaring

Although Mohawk reported a relatively modest three-cent EPS beat for Q1, analysts revised their estimates significantly higher for both 2013 and 2014. This sent the stock to a Zacks Rank No. 1 (Strong Buy). In fact, the 2013 Zacks Consensus Estimate has jumped from $5.16 to $5.80 over the last 60 days. And the 2014 consensus has increased from $6.24 to $7.05 over the same period. You can see these sharp increases in the company's "Price and Consensus" chart:

Analysts expect strong growth from Mohawk over the next couple of years, too. Based on current consensus estimates, analysts project 53% EPS growth this year and 22% growth next year. The Zacks Industry Rank is also very bullish for Mohawk. The Textile/Home Furnishings industry is the No. 1 ranked industry out of 265!

Valuation

Shares of Mohawk currently trade at 18x 12-month forward earnings, which is above its 10-year median of 15x. However, when you factor in the strong earnings growth projections and excellent earnings momentum, this premium seems reasonable.

The Bottom Line

With strong industry tailwinds, rising estimates, and stellar earnings growth projections, Mohawk Industries offers attractive upside potential.

Mohawk Industries: Free Stock Analysis Report (email registration required).

Source: Bull Of The Day: Mohawk Industries