Leggett & Platt, Incorporated LEG has been riding on its strategic growth plans, efforts to boost business portfolio and disciplined capital allocation practices, all of which helped the company to commence 2015 on a solid note.
Further, these growth drivers led the company to hit a 52-week high of $49.95 yesterday, before it eventually closed at $49.43 and surged 18.8% year to date.
Leggett’s focus on solidifying its portfolio is essential to its 3-part 2007 strategy, directed toward increasing investments in areas that provide a competitive edge and simultaneously exiting underperforming operations and markets. As evidence, in 2014, the company acquired three U.S. innerspring component production facilities of Tempur Sealy, divested a major part of its Store Fixtures business, and plans to sell the remaining facilities of the same business.
Leggett’s growth prospects are further highlighted by the fact that after successfully completing the first two parts, the company is on track with the execution of the third part of its strategy announced in 2007. As part of this, Leggett is working toward achieving top-line growth of 4%–5% annually.
Coming to its financial performance, Leggett commenced 2015 on a high, driven by solid volume gains and high margins, and posted a positive earnings surprise of 8.7%. The company’s top and bottom-line results improved year over year, following which it expects to generate record sales and EPS, along with the highest EBIT margin in 2015. Shares of the company have jumped 17.1% since the earnings announcement.
Alongside, Leggett has always maintained a disciplined capital allocation strategy, focused on making investments to develop its business, while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks.
Furthermore, the company is rationalizing its capital expenditures, including store-remerchandising efforts to improve its return on investment. As a result, it expects to generate substantial future cash flows. We believe that Leggett’s strong liquidity position will help drive future growth.
All these factors underscore Leggett’s solid future prospects and instill confidence among investors about this Zacks Rank #3 (Hold) stock.
Adding further optimism, the company currently trades at a forward P/E of 23.9x, which represents a 1.7% premium over the peer group average of 23.5x, leaving further room for an upside.
Apart from Leggett, Newell Rubbermaid Inc. NWL, The Walt Disney Company DIS and Target Corp. TGT, also hit 52-week highs of $42.00, $114.52 and $85.81, respectively, on Jun 23, 2015.
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