Recommendation: Speculative Buy
| Entry Date | Symbol | Recommendation | Entry Price (USD) | Target 1 (USD) | Target 2 (USD) | Holding Duration | Potential Upside |
|---|---|---|---|---|---|---|---|
| 29 Nov, 24 | MHK | Speculative Buy | USD 139.1 | USD 151.619 | USD 162.747 | 2 days | 17.0% |
Data Powered by EOD Historical Data (“EODHD”).
Mohawk Industries, Inc. designs, manufactures, sources, distributes, and markets flooring products for residential and commercial remodeling, and new construction channels in the United States, Europe, Russia, and internationally. It operates through three segments: Global Ceramic, Flooring North America (Flooring NA), and Flooring Rest of the World (Flooring ROW). The Global Ceramic segment provides a range of ceramic tile, porcelain tile, natural stone, porcelain slab, quartz countertop, and other products, as well as installation materials under the American Olean, Daltile, Eliane, EmilGroup, KAI, Kerama Marazzi, Marazzi, and Ragno brands. The Flooring NA segment offers floor covering products in various colors, textures, and patterns, including broadloom carpets, carpet tiles, rugs and mats, carpet pads, laminate, medium-density fiberboards, wood flooring, luxury vinyl tiles (LVT), and sheet vinyl products through floor covering retailers, distributors, home centers, mass merchants, department stores, e-commerce retailers, shop at home, buying groups, builders, commercial contractors, and commercial end users. This segment markets and distributes its flooring products under the Aladdin Commercial, Durkan, IVC, Karastan, Mohawk, Mohawk Group, Mohawk Home, Pergo, Portico, and Quick-Step brands. The Flooring ROW segment provides laminate, LVT and sheet vinyl, wood flooring, broadloom carpet, and carpet tile collections; and roofing panels, insulation boards, mezzanine flooring products, and chipboards under the Feltex, GH Commercial, Godfrey Hirst, Hycraft, IVC Commercial, IVC Home, Leoline, Moduleo, Pergo, Quick-Step, and Unilin brands. This segment also licenses its intellectual property to flooring manufacturers. The company was incorporated in 1988 and is headquartered in Calhoun, Georgia.
Enhanced Liquidity: Current Ratio of 2.03x in Q3 FY24 vs 1.73x in Q3 FY23
Improved Profitability: Net Margin of 6.0% in Q3 FY24 vs -27.5% in Q3 FY23
Higher Cash Cycle: 137.0 Days in Q3 FY24 vs 130.6 Days in Q3 FY23
Operating Inefficiency: Asset Turnover of 0.20x in Q3 FY24 vs Industry Median of 0.26x
Product Liability, Dependence on Key Personnel, Sustainability Obligations, Pricing & Product Mix Pressure, Foreign Exchange Risk, Intense Competition in the Flooring Market, Reliance on Global Supply Chains, etc.
| Entry Price | Support* | Target 1 | Target 2 |
|---|---|---|---|
| 139.1 | 121.017 | 151.619 | 162.747 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
Strong Financial Performance Despite Market Challenges
Mohawk Industries, Inc. (NYSE: MHK) reported robust financial results for the third quarter of 2024, with net earnings of USD 162 million and earnings per share (EPS) of USD 2.55. Adjusted net earnings totaled USD 184 million, with adjusted EPS reaching USD 2.90. While net sales for the quarter were USD 2.7 billion—a slight decline of 1.7% as reported and 2.1% on an adjusted basis compared to the previous year—these results reflect positive growth in a challenging economic environment. In comparison, the third quarter of 2023 saw net sales of USD 2.8 billion but a significant net loss of USD 760 million, primarily due to non-cash impairment charges.
Year-to-Date Performance Highlights
For the first nine months of 2024, Mohawk delivered net earnings of USD 425 million and EPS of USD 6.66. Adjusted net earnings amounted to USD 494 million, with adjusted EPS of USD 7.75. Although net sales for the nine-month period totaled USD 8.2 billion—a 3.8% decrease compared to the same period in 2023—the company demonstrated strong profitability and operational resilience. This improvement follows a year marked by significant losses, including a net loss of USD 579 million in 2023, which was impacted by impairment charges.
Strategic Initiatives Drive Positive Cash Flow
CEO Jeff Lorberbaum emphasized that Mohawk’s third-quarter results reflect the success of its strategic initiatives, including sales growth, enhanced productivity, and ongoing restructuring efforts. These initiatives were pivotal in offsetting pressures from pricing and product mix. The company generated USD 204 million in free cash flow during the quarter, bringing total free cash flow for the year to date to USD 443 million. Mohawk continues to invest in growth with approximately USD 450 million allocated to capital projects aimed at reducing costs, maintaining assets, and supporting long-term growth.
Market Conditions and Outlook for Economic Recovery
Despite the ongoing challenges in global markets—marked by high interest rates, inflation, and reduced consumer confidence—Mohawk remains optimistic about the future. The company anticipates that recent shifts in central bank policies, including interest rate cuts in the U.S., Europe, and Latin America, will stimulate consumer and business spending. These changes are expected to bolster the housing market and increase demand for flooring products in 2025. Mohawk is well-positioned to benefit from these trends, with a focus on enhancing sales and operational efficiency across all regions.
Ongoing Cost Management and Restructuring Efforts
Mohawk is executing a comprehensive restructuring plan designed to drive annualized savings exceeding USD 100 million. This includes rationalizing non-core assets, optimizing distribution channels, and reducing administrative costs. The company is also focusing on product innovation, launching new collections and marketing initiatives to expand market share. These restructuring and cost management initiatives are expected to further strengthen Mohawk's competitive position and ensure profitability even in a softer market environment.
Segment Performance: Ceramic and Flooring Innovation
In the Global Ceramic Segment, Mohawk recorded a 3.1% decline in net sales as reported, or a 2.2% decline on an adjusted basis, compared to the prior year. However, the segment’s operating margins improved, reaching 7.9% as reported and 8.6% on an adjusted basis. This improvement was driven by increased productivity, lower input costs, and ongoing efforts to enhance product mix through advanced technologies. In the Flooring Rest of the World Segment, net sales decreased by 3.5% as reported, or 6.3% on an adjusted basis. However, cost-saving measures and product optimization helped to partially offset the challenges posed by weaker European demand. In North America, the Flooring North America Segment saw a 1.2% sales increase, benefiting from strong consumer adoption of new product lines such as luxury vinyl tile (LVT) and laminate collections.
Resilience in the Face of Global Economic Uncertainty
Global macroeconomic factors, including political uncertainty, inflation, and consumer confidence, continue to present challenges for Mohawk. Despite these factors, the company remains committed to its strategic goals and has implemented a range of actions to mitigate risks. These include reducing operational costs, simplifying product lines, and executing promotional campaigns to support sales. Mohawk is also managing raw material inflation, which is expected to impact costs in the fourth quarter. Nevertheless, the company’s focus on innovation, operational efficiency, and disciplined cost management positions it well for long-term growth.
Positive Outlook for 2025 and Beyond
Looking ahead to 2025, Mohawk remains confident in its growth prospects. The company expects improved demand across its markets as interest rates decline and consumer spending in home renovation accelerates. The anticipated recovery in new home construction, along with expanding commercial remodeling, is expected to drive further growth. Mohawk’s strategic investments in capital projects and its increased focus on the new construction channel position the company to capitalize on these trends and maximize its sales and margins as market conditions improve.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Consumer Cyclical Industry: Furnishings, Fixtures & Appliances
| Company | Change (USD) | Price (USD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| MHK Mohawk Industries Inc |
-2.895 2.43% | 116.20 | - | 10.65 | 0.58 | 0.90 | 0.81 | 37.81 |
| HRSHF Haier Smart Home Co. Ltd |
- -% | 3.23 | 10.36 | 8.90 | 0.10 | 1.68 | 0.08 | 1.00 |
| HSHCY Haier Smart Home Co. Ltd |
0.03 0.22% | 13.81 | 10.92 | 9.25 | 0.10 | 1.74 | 0.09 | 1.04 |
| QIHCF Haier Smart Home Co. Ltd |
- -% | 1.75 | 3.77 | 3.10 | 0.10 | 0.58 | 0.02 | 0.27 |
| NCLTY Nitori Holdings Co. Ltd |
-0.92 7.34% | 11.62 | 23.73 | 19.38 | 0.02 | 2.36 | 0.02 | 0.11 |
Data Powered by EOD Historical Data (“EODHD”).
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a medium to long-term duration. Recommendations provided in this report are solely based on fundamental parameters. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is November 27, 2024. The reference data in this report has been partly sourced from REFINITIV.
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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