American Woodmark: Zacks’ Bull of the Day Play

American Woodmark (AMWDSnapshot Report) recently delivered strong fiscal 2015 first quarter results, prompting analysts to revise their estimates significantly higher for both this year and next. This sent the stock to a Zacks Rank #1 (Strong Buy).

While the stock price has soared since the Q1 report, the valuation picture still looks reasonable. Given the strong earnings momentum and growth projections, American Woodmark still offers investors attractive upside potential.

American Woodmark Corporation manufactures and distributes kitchen cabinets and vanities for both the new home construction and remodeling markets.

First Quarter Results

American Woodmark delivered better-than-expected results for the first quarter of its fiscal 2015 on August 19. Adjusted earnings per share came in at $0.52, beating the Zacks Consensus Estimate of $0.41. It was a 21% increase over the same quarter last year.

Net sales jumped 19% year-over-year to $211.9 million, well ahead of the consensus of $195.0 million. The company saw top-line growth in both its remodeling and new construction divisions during the quarter. Notably, new construction sales surged 21% year-over-year, which outpaced the 13% increase in housing starts.

The gross profit margin actually declined from 18.9% to 17.5% of net sales due to higher material prices and labor costs. However, analysts expect this headwind to subside soon. Furthermore, selling, general and administrative expenses declined from 12.8% to 11.3% of net sales due to operating leverage and ongoing expense control.

All-in-all, the operating margin expanded slightly, from 6.1% to 6.2% of net sales.

Estimates Soaring

Following strong Q1 results, analysts revised their estimates significantly higher for both fiscal 2015 and 2016. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $1.90, up from $1.78 before the report. The 2016 consensus is currently $2.25, up from $2.05 over the same period.

Based on current consensus estimates, analysts are projecting 47% EPS growth this year and 18% growth next year.

Valuation

While shares of AMWD have soared following the Q1 report, the valuation picture still looks reasonable. The stock trades around 19x 12-month forward earnings, which is above its 10-year historical median. But given the strong growth projections and positive earnings momentum, this premium seems justified.

The company’s price to cash flow is 16x, which is also above its historical median but not unreasonable.

It’s also worth noting that American Woodmark has about $5/share in net cash on its balance sheet after subtracting its long-term debt and pension liabilities.

The Bottom Line

With strong earnings momentum, solid growth projections and reasonable valuation, American Woodmark still offers investors attractive upside potential.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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