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On Tuesday, Wolfe Research adjusted its outlook on American Woodmark Corporation (NASDAQ:AMWD), downgrading the company’s stock from Outperform to Peer Perform. The change in rating comes amid concerns over the potential effects of Mexico import tariffs, a slowing in Single-Family Housing Starts, and persistent softness in large-ticket renovation and remodeling (R&R) categories.
Analysts at Wolfe Research highlighted the uncertain outcome of the new tariffs on imports from Mexico and how they could hinder American Woodmark’s ability to surpass its industry peers in the current year (CY25). The firm has revised its revenue projections for the company, consequently expecting a more modest increase in EBITDA of 2.6% for CY25. This forecast falls slightly short of the 3.8% EBITDA growth previously anticipated for Wolfe Research’s coverage of the Building Products sector. According to InvestingPro data, the company maintains strong fundamentals with a current ratio of 1.93 and sufficient cash flows to cover interest payments, suggesting resilience despite market challenges.
The downgrade reflects Wolfe Research’s assessment of the risks posed by external economic factors on American Woodmark’s performance. The report specifically points to the potential impact of the tariffs on the company’s supply chain, which includes significant exposure to Canada and Mexico, as detailed in Exhibit 2 on page 3 of their coverage.
The revised EBITDA growth expectation of 2.6% represents a cautious stance from Wolfe Research, considering the broader challenges facing the building products industry. The firm’s analysis indicates that American Woodmark’s financial outlook is now more aligned with its peers, rather than positioned to outperform them, as previously predicted.
This adjustment by Wolfe Research provides investors with a revised perspective on American Woodmark’s stock, taking into account the latest market conditions and regulatory changes that could affect the company’s performance in the competitive building products landscape. Despite current challenges, InvestingPro analysis indicates the stock may be undervalued at current levels, with analyst targets ranging from $94 to $112. For deeper insights into American Woodmark’s valuation and growth prospects, including exclusive ProTips and comprehensive financial analysis, investors can access the detailed Pro Research Report, available to InvestingPro subscribers.
In other recent news, American Woodmark Corporation experienced a dip in Q2 FY2025, with net sales declining by 4.5% year-over-year to $452.5 million. This decrease was attributed to a reduced demand in the remodel market and a slowdown in new construction single-family starts. The company’s adjusted EBITDA stood at $60.2 million, accounting for 13.3% of net sales, and earnings per share were reported at $1.79. Despite these challenging conditions, Baird maintains an Outperform rating for the company, even increasing its price target to $118 from the previous $115. The firm attributes American Woodmark’s underperformance to a weaker macroeconomic environment but sees no change to the company’s attractive long-term earnings potential. In response to these market conditions, American Woodmark has been actively repurchasing its shares and implementing strategic initiatives, such as operational excellence and cost management. These recent developments highlight the company’s resilience and commitment to enhancing shareholder value amidst challenging market conditions.
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