Interface Carpet Tiles Lay the Foundation for Growth - Barron's

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A Wall-to-Wall Wonder by Sandra Ward

Summary: Carpet tile-maker Interface's (IFSIA) tile-shaped pieces can be cheaply and easily laid, modularly cleaned and replaced. Aside from commercial and high end retailers IFSIA is increasingly attracting mass market retailers like Lowe's (LOW) and other commercial businesses like education facilities and medical centers. Shares went from $2 in 2002 to $16.30 now, but could reach $20-22 because: 1) CEO Dan Hendrix expects carpet tiles to double its 1/3 industry share by 2017. 2) Revenues should rise 10% next year, and an aggregate 25% by 2010. 3) Unprofitable lines will be sold. 3) IFSIA's paying down debt: from $500 million to $300m currently, aiming for $200m. 4) IFSIA's environmentally-conscious policies. 5) Growing European market share. 6) Current 16-18 P/E projections of $0.90-$1/share could climb to $1.25-$1.30/share or 12 P/E on profit growth. 7) Traditional competitors like Mohawk Industries (MHK) and Shaw Industries are more exposed to slumping residential markets. But other high-end office furnishers like Herman Miller (MLHR), Knoll (KNL) and Hubbell (HUB), trade at 9 P/E to IFSIA's group-relative 8 P/E. IFSIA's estimated 2007 41% earnings growth beats the group's 23%. Barron's Bottom Line: IFSIA's primarily commercial renovations tile market should offset the residential housing's downturn. Shares could climb 25%-37.5%

IFSIA 1-yr. chart:

Related Links: Short Plays for More Housing Market Weakness • Mohawk Is Ready for a Housing Recovery - Barron's • Interface Sustainability Website