Jeld-Wen Is Under New Management; Can It Meet Its Full Potential?

Deutsche Bank started coverage of Jeld-Wen Holding Inc JELD, the largest door manufacturer in the United States, with a Buy rating and $36 price target, primarily on margin expansion opportunity and recovery in many global construction markets, including United States.

Looking Ahead

“The opportunity in JELD-WEN's stock arises from both the company's leading global positions in windows/doors and the undermanagement of the business during the great recession and in the early years of recovery,” analyst Nishu Sood wrote in a note.

Sood estimates Jeld-Wen’s FY 2016 EBITDA margin will be about 10.7 percent and sees 250 bps of EBITDA margin expansion from 2016 to 2018. The management’s long-term goal is for 15–20-percent margins, driven by pricing, leverage and productivity.

“The most important assumption investors make in buying JELD-WEN stock is whether management has credibility in achieving margin goals. Based on management’s prior track record and success to date, we think they do,” Sood continued.

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In addition, the analyst noted that strong cash flows support the margin growth story of the building products company. Sood expects free cash flow to comfortably exceed net income in FY 2017 and 2018 (123 percent and 111 percent) supported by controlled working capital/capex as well as NOL tax savings.

“So, investors have the opportunity to invest in a high quality set of businesses that are being brought up to their full potential by new management,” Sood added.

At last check, shares of Jeld-Wen rose 1.76 percent to $30.