VAL 031412
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.
