Earnings Check-in: $MAS quality still underappreciated

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Masco stock continues to reflect too much cautiousness. Should this company traded at such a discount to the market?

As a reminder, Masco owns Behr paint (exclusive to Home Depot) as well as other brands like Kilz. The company reported Q2’21 numbers, which were good and raised guidance, but the stock hasn’t reacted as much as I’d hope.

Q2’21 EPS was $1.14 vs. consensus $1.03 and they raised EPS to $3.70 vs. consensus at $3.63

That’s a “modest raise” so why was I expecting a stronger reaction? I got the sense that Masco stock was becoming a consensus short. This stems from the company’s exposure to DIY vs. DIFM (do it for me). Sherwin is a play on DIFM whereas Masco stock is DIY.

Masco’s paint did decline 5% on a +8% comp, so things are normalizing.

But not all Masco does though. Masco is the owner of Delta, the faucet and plumbing brand and that’s ~60% of LTM sales. This fact is often overlooked in my view and its easy to relegate Masco just to “Behr paint.”  Plumbing sales were +53% and +31% on a two-year stack.

So there was caution on DIY and there was also caution on raw material inflation. PPG reported earlier and highlighted that inflation and supply shortages would hurt earnings expectations. Masco has inflation headwinds, but it actually said it was have price / cost neutral by year end and they had margin expansion from volume gains.

Where does Masco stock sit now?

Masco stock currently trades at 10.5x 2022 EBITDA and 15x EPS. However, they are currently doing about $850MM in FCF and they have $750MM in cash and nothing drawn on a $1BN revolver (so plenty of liquidity).

At the current market cap of $15BN, they could easily buy back 10% of the stock over the next 12-18 months. They repurchased $875MM in the TTM, so its not crazy to think they keep on plugging away at this. This very much reminds me of my Autozone call

Also, its important to remember from a valuation standpoint, Masco’s ROIC is insane. Take a look:


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