Despite the myriad industrial production challenges created by the COVID-19 pandemic last year, there are many reasons to be optimistic about the building materials industry. A substantial uptick in residential, commercial and infrastructure spending, buoyed in part by the federal government’s stimulus efforts, should help the industry thrive this year and beyond.
Surging housing demand, coupled with robust residential repair and remodel activity, may further accelerate the building materials industry’s growth. Also, with consumers spending more time at home, a substantial increase in DIY renovation and construction projects should also lead to increased demand for building products used in the construction and improvement of living spaces.
With these factors in mind, we think these building product stocks are among the best positioned to capitalize on growing demand: Carrier Global Corporation (CARR), Masco Corporation (MAS), Owens Corning (OC), and Advanced Drainage Systems, Inc. (WMS).
Carrier Global Corporation (CARR)
Headquartered in Florida, CARR offers building automation technologies, ventilating, air conditioning, refrigeration, heating, fire, and security services worldwide. The company operates through HVAC, Refrigeration, and Fire & Security segments. It sells its products under the brand names Autronica, Chubb, Det-Tronics, Edwards, Fireye, among others.
This month, CARR’s 1500 OptiClean air scrubbers were installed in northern California’s Manteca Unified School District to provide improved indoor air quality across its 30 schools. California’s San Bernardino City Unified School District and Alvord Unified School District have also recently purchased 3,700 and 1,500 units of its OptiClean solution, respectively. With students, staff and teachers returning to campus, CARR is expected to witness a higher demand for its products.
Also, this month , the company entered a three-year service agreement with Jefferson Regional Medical Center to provide more than 100 heating, ventilating and air conditioning (HVAC) assets, and support the hospital’s Carrier i-Vu Building Automation System. This agreement will allow CARR to offer its customers enhanced equipment efficiency.
CARR’s net sales increased 2.1% year-over-year to $4.59 billion in the fourth quarter, ending December 31. Its operating profit grew 123.5% from its year-ago value to $1.25 billion, while its net income grew 100.9% year-over-year to $884 million over the period. The company’s EPS increased 104% from its year-ago value to $1.02.
A consensus EPS estimate of $2.22 for its fiscal year 2022 represents a 15.6% improvement year-over-year. The consensus revenue estimate of $19.74 billion for the next year represents a 5% increase from the same period last year. The stock has gained 191% over the past year.
CARR’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
Within the A-rated Industrial – Building Materials industry, it is ranked #18 of 55 stocks.
To see additional POWR Ratings for Sentiment, Stability, Quality, Growth, Value, and Momentum for CARR, Click here.
Masco Corporation (MAS)
Michigan-based home improvement and building products manufacturer MAS operates through two segments: Plumbing Products and Decorative Architectural Products. The company sells its products to the plumbing, heating, and hardware wholesalers, online retailers, hardware stores, building supply outlets, and other mass merchandisers.
In February 2021, MAS launched Masco Ventures, a $50 million venture capital fund, to invest in startups that are relevant to the company’s industry-leading brands. MAS believes this fund should contribute to its commitment to innovation and, therefore, support its long-term growth strategy.
In the fourth quarter, ended December 31, 2020, MAS’ net sales increased 13% year-over-year to $1.86 billion. Its gross margin increased 100 basis points from its year-ago value to 35.6%, while its operating margin grew 90 basis points year-over-year to 16.6%. The company’s income from continuing operations increased to $0.73 per share, compared to $0.56 per share in the prior year quarter.
Analysts expect MAS’ revenue for the quarter ending March 31 to be $1.81 billion, representing 14.4% year-over-year growth. Its EPS is likely to increase 8% for its fiscal year 2021. MAS has gained 73.5% over the past year.
It is no surprise that MAS has an A grade for Growth, and B for Quality. In the A-rated Home Improvement & Goods industry, it is ranked #40 of 64 stocks.
In total, we rate MAS on eight different levels. Beyond what we’ve stated above, we have also given MAS grades for Momentum, Value, Stability, and Sentiment. Get all the MAS ratings here.
Owens Corning (OC)
Incorporated in 1938, OC is a manufacturer and marketer of insulation, roofing, and fiberglass composite materials in the United States, Canada, Europe, and internationally. The company operates through three segments–Composites, Insulation, and Roofing. It sells its products primarily to insulation installers, home centers, lumberyards, retailers, and distributors.
On March 24, the company announced the appointment of José Méndez-Andino as executive vice president and chief research & development officer, effective April 1. His leadership skills and expertise should help him boost the company’s R&D efforts to prime long-term growth.
During the fourth quarter, which ended December 31, 2020, OC’s net sales increased 13.8% year-over-year to $1.93 billion. Its operating income rose 60.9% from the year-ago value to $272 million. The company’s net earnings increased 217.8% year-over-year to $232 million, while its EPS grew 220.9% from the prior-year quarter to $2.15.
OC is expected to see revenue growth of 8.2% for 2021 and 3.5% for 2022. Its EPS is estimated to increase 25.9% in the current year, and at a rate of 8.6% over the next five years. Over the past year, OC’s stock has gained 134.1%.
OC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating which equates to Buy in our POWR Ratings system. OC has a B grade for Sentiment, Quality, and Growth. Among the 55 stocks in the A-rated Industrial – Building Materials industry, it is ranked #8.
Click here to see the additional POWR Ratings for OC (Stability, Value, and Momentum).
Advanced Drainage Systems, Inc. (WMS)
Founded in 1966, WMS is a designer and manufacturer of thermoplastic corrugated pipes and related water management products. It also markets drainage solutions for use in the underground construction and infrastructure in the United States, Canada, and internationally. It offers its products for use in residential, agriculture, and infrastructure applications through a network of approximately 32 distribution centers.
This month, the company released Inserta Tee OneFit, its next-generation Inserta Tee lateral service connection for contractors seeking high-quality, cost-effective and easy-to-install compression fittings. The launch of this innovative and versatile product should help the company diversify its product portfolio and differentiate itself in the market.
WMS’ net sales increased 23.6% year-over-year to $486.1 million in the third quarter, ended December 31. The company’s net income increased 128.4% from its year-ago value to $54 million, while its adjusted ebitda grew 52.1% year-over-year to $138.9 million. WMS’ gross profit rose 36.6% from the prior-year quarter to $168.5 million, attributable primarily to an increase in pipe, on-site septic and allied products sales volume.
The company’s EPS is expected to grow 194.1% for 2021. The Street expects WMS’ revenue to increase 16.5% in fiscal 2021 and 6.6% in fiscal 2022. WMS’ stock has gained 252.7% over the past year.
WMS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. WMS also has a B grade for Growth, Quality, and Sentiment. The stock is ranked #21 of 46 stocks in the A-rated Industrial – Manufacturing industry.
In addition to the POWR Ratings grades I’ve just highlighted, you can see the WMS ratings for Value, Momentum, and Stability.
The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
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CARR shares were trading at $42.51 per share on Wednesday morning, up $0.15 (+0.35%). Year-to-date, CARR has gained 12.70%, versus a 6.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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