MKM Likes Mohawk's Share, Scale Gains, Initiates With Buy Rating, $244 Target

Mohawk Industries, Inc. (NYSE: MHK) has a strong execution history, and has been consolidating to gain leverage. MKM Partners’ Megan McGrath initiated coverage of the company with a Buy rating and a price target of $244. The analyst expects Mohawk to continue to consolidate “in an industry where scale matters,” while also increasing capacity and making operational improvements.

Mohawk As A Consolidator

Since 2013, Mohawk has made acquisitions worth about $3.2bn. Analyst Megan McGrath believes that these have, in part, contributed to “the company's above-average earnings growth rate over that time period.” Mohawk has achieved EPS growth of 170 percent since 2012, ahead of most of its peers.

McGrath expressed optimism regarding the company’s ability to identify and integrate acquisition candidates. Management has indicated that the balance sheet can support $1bn-$1.5bn in incremental debt, which may be used for acquisitions. “We estimate that this level of acquisition spend could contribute an additional $0.50-$1.00 in near-term earnings accretion,” the analyst wrote.

Growing Share

Mohawk has a “healthy balance of growth drivers,” McGrath commented. The company continues to increase its exposure to the fast-growing LVT market.

Mohawk’s major US end markets are expected grow at a healthy rate in 2016, and non-North American business, which contributes 30 percent of total sales, would begin to witness benefits of the company’s global scale, with currency impacts beginning to wane, the MKM Partners report stated.