Delta And Hansgrohe's New Products Will Expand Market Share In Future

Key Takeaways

• Innovative products in plumbing and pro paint expansion are expected to drive revenue growth by capturing larger market share and entering new categories.
  
• Divestiture of Kichler Lighting and cost-saving initiatives aim to streamline operations, improve margins, and focus on core businesses.
  
• Revenue challenges loom for Masco due to divestitures, tariffs, sluggish DIY growth, flat sales in major markets, and adverse foreign exchange rates.

Catalysts

Provides home improvement and building products in North America, Europe, and internationally.

• The introduction of innovative products in the plumbing segment, such as Delta's water quality products and hansgrohe's energy-saving designs, is expected to drive future revenue growth by capturing a larger market share and expanding into new categories.
  
• The strategic focus on expanding the pro paint category, with sales already having increased significantly, suggests a potential for increased revenues driven by tapping into the sizable pro paint market.
  
• The divestiture of Kichler Lighting is poised to streamline Masco's portfolio, allowing the company to focus on its core businesses, potentially improving net margins through greater operational efficiency and resource allocation.
  
• Ongoing cost savings initiatives and operational efficiencies are projected to further expand operating margins in 2025, as demonstrated by the consistent margin improvements in the past quarters.
  
• Targeted capital deployment, including share repurchases and potential acquisitions, is expected to enhance earnings per share, indicating a commitment to creating shareholder value through disciplined financial strategies.

Masco Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Masco's revenue will grow by 2.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.5% today to 12.9% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $5.37) by about March 2028, up from $822.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.7x on those 2028 earnings, up from 18.2x today. This future PE is lower than the current PE for the US Building industry at 19.8x.
• Analysts expect the number of shares outstanding to decline by 3.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Masco Future Earnings Per Share Growth

Risks

• The recent divestiture of Kichler Lighting has led to a decrease in sales and is anticipated to continue impacting revenues negatively in the short term. This reduction in revenue could offset gains in other areas.
  
• The introduction of China tariffs presents a challenge, potentially affecting costs and profit margins due to increased expenses on imports if not successfully mitigated through sourcing or pricing strategies.
  
• The expectation of flat to declining sales in both global and North American repair and remodel markets reflects a challenging market environment, which could pressure Masco’s top-line growth and limit revenue increase prospects.
  
• Growth in the DIY segment is expected to continue to lag, remaining down in low single digits, which poses a risk to revenue as a substantial portion of sales comes from this segment.
  
• Foreign exchange rates remain unfavorable, with currency expected to have a negative impact of approximately 1% on sales, representing a consistent risk to international revenue and earnings.

Valuation

• The analysts have a consensus price target of $84.663 for Masco based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $96.0, and the most bearish reporting a price target of just $74.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.4 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 18.7x, assuming you use a discount rate of 8.2%.
• Given the current share price of $70.68, the analyst price target of $84.66 is 16.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.