Mohawk's Floor Is In - Barron's

Shares of flooring company Mohawk Industries (MHK) are down more than 30% from last spring's highs, as Wall Street continues to worry how it will deal with soft housing sales and high energy and raw material costs. Barron's magazine is again bullish on the stock, noting it has transitioned itself from a carpeting specialist to a full-service flooring firm.

Sales of carpets and rugs in the U.S. grew at just 4.3% from 2002-2006, vs. 7.6% for ceramic tiles and 13.5% for do-it-yourself favorite laminate. This trend is not lost on Mohawk, which is also squeezing more generous profit margins out of its newer businesses. Carpet sales still count for more than half of its revenue, but only 17% of its operating income. Dal-Tile contributed 44% of its net income on just 25% of sales, and laminate unit Unilin chipped in another 40% on less than 25% of sales.

New homes represent just 20% of Mohawk's sales, vs. 55% from residential flooring and 25% from industrial customers which continue to buy. It continues to pay down debt (now 32% of capital). Along with Berkshire Hathaway's (BRK.A) Shaw, it controls more than 45% of the U.S. flooring industry, and the two have the only national distribution systems. Veteran CEO Jeffrey Lorberbaum and his family own 20% of the company.

Morningstar analyst John Kearney: "Mohawk will be well positioned for the long term when new residential construction and remodeling activity return to more normalized levels." He thinks shares are worth $110 -- a 40% premium. Eagle Capital's Meryl Witmer agrees: Based on future (normalized housing) estimates, she says shares could go for $120.

 

==============================================

 

David Schawel calls Mohawk's short-term weakness "a prime opportunity to invest in this growing cash-flow machine." Investors may require some patience, but will ultimately be amply rewarded.

On the company's most recent conference call, Lorberbaum seemed testy when analysts pressed him on how reduced factory production was impacting margins. He and CFO Frank Boykin were less than forthcoming when grilled by analyst Eric Bosshard on free cash flow.

"You know it kind of gets back to our inability to go out and give you guidance beyond the quarter out, because we have limited visibility beyond the quarter and so it's a little bit of the same issue."

 

Comments

[0ldman]

i know mhk bussinies this article is realistic and docomented i will flow the advise.

[kakatiya]

How much of their production is Offshore ?

Carpet is very expensive to ship. With shipping rates going thru the roof. The one with more domestic production might win.

Shaw has lot of its production moving to China.