Leggett & Platt Notches Sell-Side Upgrade: Stifel Projects Upcoming Inflection Point

Manufacturer Leggett & Platt, Inc. LEG failed to meet estimates when it reported first-quarter earnings April 26.

The Analyst

Stifel's John Baugh upgraded Leggett & Platt from Hold to Buy and increased the price target from $48 to $50.

The Thesis

The Missouri-based company is nearing an inflection point in its top-line growth and margins, Baugh said in the upgrade note. (See the analyst's track record here.) 

"This, combined with a below historical average valuation for the stock, creates an attractive entry point," the analyst said. 

Baugh expects improvement in volumes as the company's two largest end markets — bedding and automotive — improve in the second half of 2018.

The possibility of a tariff on imported foam products could be catalyst for Leggett & Platt, Baugh said.  

Rising steel prices had a negative impact on the company's margins, but this could change due to the spread between scrap (Leggett's cost) and rod (end products) rising meaningfully year-to-date, the analyst said. This represents "a very nice opportunity" for the company to realize margin and profit improvements, he said. 

The difficult volume and margin backdrop over the past quarters pressured the stock, which is now trading at 10 times Baugh's 2018 EBITDA estimate and 15 times his 2018 EPS estimate. Its three-year average is 11 times and 18.8 times, respectively. The stock has typically traded more or less at a similar valuation to the S&P 500, but is now trading at roughly a 10-percent discount, Baugh said. 

Price Action

Leggett & Platt shares opened Thursday's session at $43, but it failed to maintain its gains and was trading at $41.24 at the time of publication, down 1.83 percent. 

Related Links:

Earnings Scheduled For April 26, 2018

Benzinga's Top Upgrades, Downgrades For May 31, 2018