Daniel Loeb (Trades, Portfolio) is well known activist investor. He founded Third Point LLC in 1995 and leads the firm’s research activities, portfolio, and risk management. Third Point’s total assets are more than $2.2 billion, and Loeb’s personal net worth is $2.3 billion.
Last quarter, Loeb bought 1.9 mn shares of Masco Corporation (MAS, Financial). As of December 31, 2014, he was holding 10 mn shares of the company. The following chart shows Dan Loeb's holding history in the company.
Here's a look at the company in detail.
Masco Corporation manufactures, distributes and installs home improvement and building products, with an emphasis on brand-name consumer products and services holding leadership positions. The company is among the largest manufacturers in North America of a number of home improvement and building products, including faucets, cabinets, architectural coatings and windows, and it is are a leading provider of services that include the installation of insulation and other building products. The company provides broad product offerings in a variety of styles and price points and distributes products through multiple channels, including directly to homebuilders and wholesale and retail channels. Approximately 81% of the company's 2014 sales were generated by its North American operations.
The following table shows the company's topline and operating profit in the last three years (Source: 10-K filing)
Masco reported a strong fourth quarter performance with adjusted EPS increasing 27% to $2.27. This despite of a $0.09 per share headwind from adverse foreign exchange movements. During this period, Masco increased its adjusted operating income by 18% and its sales on constant currency basis increased 5%. In the US business, the company's commercial, new home and rental channels saw good strength while retail and remodeling were a bit soft. In the European operations, the company saw improvement across all product categories on the constant currency basis.
Masco also showed discipline on the cost side reducing S,G&A as a percentage of sale and holding total dollars flat, while investing in growth areas of the business. Across the business, process improvements enhanced yields, reduced waste, lowered conversion costs, improved product management and increased quality. For the full year 2014, the company's sales rose 7% on a constant currency basis and its adjusted EPS increased 24%.
Hospitality was one of the company's strongest performing commercial sector with expanding commitments from major hotel chains during the last quarter. To further enhance its position in hospitality segment, the company is launching a new Definity Collection as an alternate to premium, custom woven carpets. On the residential side, the company expanded its position with major retailers, home-centers and builders.
Going forward, rising consumer confidence supported by lower gasoline prices, low interest rates, increased home values and improving job market, should drive higher growth for the company in the US. The National Association of Builders is projecting robust growth in single-family construction in 2015, with Harvard's LIRA index predicting greater residential remodeling investments. The consensus among commercial construction forecast is for mid-single digit growth during 2015.
In Europe, the company expects sales to increase slightly in local currency despite of challenging economic conditions. The company's product innovations and manufacturing upgrades are likely to improve its mix and operating margins in Europe.
In addition to organic growth, the company's business will also benefit from its aggressive acquisition strategy. The company announced acquisition of the IVC Group in January and the transaction is likely to complete early in the second quarter. IVC Group has a low cost position in the Bulgarian and Romanian markets. Masco plans to help it enhance the product offering, upgrade technology and expand exports to other countries. During the past 20 years, the company have executed over 30 strategic and bolt-on acquisitions which have enhanced its market position and results. I expect this inorganic growth strategy to continue going forward.
Masco is trading at a forward PE of 17.30. According to sell side estimates, its EPS is expected to grow 21.5% in the current year and 25% next year. Out of 25 analysts covering the company, 11 are bullish and have buy ratings, while 14 have hold ratings. The company has a dividend yield of 1.40%. I believe the stock is a good buy at current levels given its high growth rate, reasonable valuations and the fact that we are still in early phases of the US housing recovery which should act as a tailwind for Masco.
