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Valspar (VAL)
Where
there is smoke there’s fire,
or in this case, where there is home improvement growth (and more),
there is
paint.
Home
Depot and Lowes both reported
strong earnings this past season, which is good news for Valspar as
home improvement
continues to strengthen. Housing prices
are bottoming, but more importantly, transactions are increasing and
many of
the properties being sold are distressed or multi-family developments.
Both of which
will most likely require a common element for the new owner(s); paint!
Even
though Valspar provides Lowes with
a huge array of premium coatings to sell to customers, Lowes is not the
only
way Valspar is making money.
Valspar’s
diverse selection of
coatings of all types for many industries may make it a second
derivative play
for the global economic recovery that is underway.
Company
Description &
Developments
Minneapolis based Valspar is more than just a “paint” company you may
find at
Lowes. They are the sixth largest paint
and coatings company in the world employing over 9,500 people with a
pedigree
that stretches back to 1806. The company offers a plethora
of products and brands that span dozens of applications in over 25
countries.
Their products include the
paint, varnish and stains that you might find in a do-it-yourself
hardwood store,
but they also offer solutions for autos, boats, wood finishing, high
performance
floor coatings (hardwoods, stone, etc) and even coatings and inks for
packaging
of all types. In fact, Valspar is the number
one global supplier of packaging coatings (everything from soda cans,
healthcare
items and even cosmetics) with the broadest product line in the
industry,
providing internal and external systems for nearly every rigid
packaging
end-use.
The company is also well
positioned in growth markets such as Asia, Latin America and the Middle
East. In fact 46% of the company’s sales are
outside the U.S. and Canada. They are known
for their technology and customer experience, which they believe will
be key
catalysts to future growth.
They are currently throwing off a 1.65% dividend
yield to investors.
Financial Profile
Valspar is a mid-cap (4.64 billion) company that is trading at about 16
times forward
(expectations for next quarter) earnings.
VAL
became a Zacks Rank 1 strong buy
on February 22nd, 2011
The
coatings company reported a
quarterly sales decrease of 15% at their last (Q12012) earnings report
and saw a
26% drop in EPS for the same period. This quarterly weakness
was offset
with total annual revenue up 5% compared to the year prior.
Q1
adjusted net income per share
increase to $0.62 in 2012, a 59 percent increase from $0.39 in 2011.
Net income
for the first quarter of 2012 was $55.8 million and reported earnings
per share
were $0.58. Net income for the first quarter of 2011 was $33.4 million
and
reported earnings per share were $0.34.
During
fiscal Q1, VAL issued 400
million in bonds to strengthen their balance sheet.
Earnings Estimates
On their conference call, CEO Gary
E. Hendrickson noted “We are pleased to report strong earnings for the
quarter,
which were the result of excellent execution and generally in line with
our
expectations. We continue to make progress in restoring our operating
margins
through pricing, productivity and cost management”
Valspar
is expected to earn 77 cents
in the current quarter when they report on May 21st according to the
Zacks Consensus Estimate. VAL has
surprised analysts to the upside 2 quarters in a row at an average of
almost
4.5%. They met estimates in the prior 2
quarters.
Of
the 11 analysts who cover ADS,
the consensus is for the company to grow earnings by 17% in the current
year (FY2012)
and roughly 13% in FY2013.
In terms of the magnitude of
analyst estimate trends, we are seeing all of the consensus estimates
higher
than they were 90 days ago for the current and next quarter as well as
FY2012 and
FY2013.
VAL expects full year
earnings to come in between $2.92-$3.12.
Market Performance &
Technicals
Valspar may be one of those gems that no one talked about, but secretly
invested in. The stock has been riding
a rocket since mid-December, leaping 43%
Initial
support for the bulls in VAL
will be around the $46 mark, where the stock consolidated for about a
week and
a half. Below that level, look for
support at the 50 day moving average of $44.18.
The 200 day average, which is the next support, is a ways below at
roughly
$36.50.
VAL
has exceeded the S&P 500’s
performance in the past year by almost 22% and outpaced it by over
18.5% in the
past 3 months during its recent rally which obviously confirms the
strength has
been recent. The stock remains in a
bullish trend and has maintained its momentum in the past month,
leading the
index by about 5%.
Jared
A Levy is the Momentum Stock
Strategist for Zacks.com. He is also the Editor in charge of the
market-beating
Zacks
Whisper Trader Service.
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