Masco Down to Strong Sell on Poor Q1 - Analyst Blog

Zacks Investment Research downgraded Masco Corporation MAS to a Zacks Rank #5 (Strong Sell) on May 21. Masco has been witnessing sharp downward estimate revisions ever since it reported weak first-quarter fiscal 2014 results on Apr 24, 2014. Also, the stock price has declined slightly more than 7% since then.

Why the Downgrade?

After a strong 2013, Masco began 2014 on a softer note missing the Zacks Consensus Estimate for both revenues and earnings as North American sales and profitability were impacted by rough weather. Earnings increased 15.4% year over year as decent margins made up for the relatively softer revenue performance.

Revenues grew 4.8% year over year to $20 billion as strong international sales made up for softer North American revenues. With the U.S. residential activity growth slowing down in the second half of 2013, the demand for Masco's products has begun to decline. In addition, the top line was negatively impacted by harsh weather conditions in the quarter.

The adverse weather conditions resulted in temporary closure of multiple facilities in Masco's Cabinetry and Installation segments and also led to increased fuel cost and production and project delays. In fact, loss widened in the Cabinet segment from last year due to these issues.

The Zacks Consensus Estimate for 2014 declined 9% while that for 2015 went down 6% over the last 30 days in response to the poor results.

We believe the moderation in housing starts may impact the next few quarters as well.

Other Stocks to Consider

Not all building/construction stocks are performing as poorly as Masco. Other better-ranked stocks in the sector include United Rentals, Inc. URI, Aegion Corporation AEGN and The New Home Company LLC NWHM. All the stocks carry a Zacks Rank #2 (Buy).