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On Wednesday, Wolfe Research analyst Truman Patterson upgraded Mohawk Industries (NYSE:MHK) stock, listed on the New York Stock Exchange (NYSE:MHK), from Peer Perform to Outperform and set a price target of $150.00. The new price target implies a 27% potential upside from the current levels. With a market capitalization of $7.4 billion and a P/E ratio of 13.2, InvestingPro data shows the company maintains strong profitability with $564 million in net income over the last twelve months.
Patterson cited the underperformance of the flooring category, which has seen volumes drop more than 10% below 2019 levels, as a reason for the upgrade. Despite the slowdown in repair and remodel (R&R) spending and consumer hesitation on large-ticket projects, Patterson believes that conditions are primed for a significant recovery in the coming years. Flooring, as a large-ticket category, is expected to experience some of the strongest growth.
The decision to raise the stock rating follows a period of underperformance relative to Mohawk's industry peers. When Wolfe Research assumed coverage of Mohawk Industries in August, the firm initially issued a Peer Perform rating.
At that time, Mohawk's stock had outperformed the Building Products coverage by 41 percentage points year-to-date. However, since then, Mohawk's stock has fallen behind by 18 percentage points, making its valuation metrics more attractive. According to InvestingPro's Fair Value analysis, the stock appears undervalued at current levels, with additional insights available in the comprehensive Pro Research Report.
Patterson's commentary also touched on factors such as Luxury Vinyl Tile (LVT), tariffs, and the large-ticket cycle, which are detailed on the second page of Wolfe Research's report. The upgrade reflects a positive outlook for Mohawk Industries in the context of the broader building products sector and anticipates a rebound in consumer spending on home projects that had been previously postponed.
In other recent news, Mohawk Industries has experienced a number of noteworthy developments.
The company reported mixed third-quarter earnings for 2024, with a 7% increase in earnings per share to $2.90, despite a slight 2% decline in net sales, totaling $2.7 billion. In addition, the firm generated a free cash flow of $204 million for the quarter, contributing to a year-to-date total of $443 million.
Loop Capital recently adjusted its price target on shares of Mohawk Industries, reducing it to $180 from the previous $185, while retaining a Buy rating on the stock. This adjustment was made in response to mixed feedback from market checks and discussions with management. Despite weak sales, Loop Capital views Mohawk's valuation as attractive, acknowledging the company's ongoing productivity enhancement efforts.
Looking ahead, Mohawk Industries plans to invest $450 million in capital projects for growth and cost reduction, with a new production line expected to start in 2024. The company's fourth-quarter adjusted EPS is projected to be between $1.77 and $1.87, accounting for the impact of recent hurricanes.
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