Calhoun, Ga.—Analyst Stifel Nicolaus said it is raising its 2014 earnings estimates for Mohawk Industries after meeting with the company’s chief financial officer.
Stifel said it is raising its full-year estimate from $7.69 per share to $8.15 “to reflect much greater contribution margins in carpet and higher synergies in laminate and ceramic than we had originally modeled.” It has a “buy” rating on Mohawk, which will be added to the S&P 500 later this month. Mohawk, Stifel said, should benefit from a continuing rebound in the residential and commercial markets in the U.S., which comprise approximately 70% of consolidated revenues.
Mohawk, which has recently acquired Pergo, Spano and Marazzi, has been integrating the businesses, and Stifel believes Marazzi has the greatest potential. ”Mohawk is now hitting on many cylinders after years of stagnant demand,” Stifel said. ”As we have noted before, once volumes began to expand and mix improved, we expected to see good margin expansion. The past two quarters are evidence that these trends are underway. It doesn’t hurt that raw materials have stabilized, allowing previous price increases to catch up to earlier cost inflation.”
Stifel believes that management is more optimistic than at any time since 2006. Carpet margins the past two quarters have exceeded the 20% long-term goal and will likely be closer to 30% in 2014, Stifel said, thanks in part to the “soft revolution.” Mohawk ceramic sales are just beginning to benefit from the Marazzi acquisition, Stifel said.