Longbow: 5 Reasons To Like Interface

Shares of carpetmaker Interface, Inc. TILE are trading at an attractive valuation, and any concerns tied to its second-quarter earnings report are overblown, according to Longbow Research. 

The Analyst

Longbow's David MacGregor upgraded Interface from Neutral to Buy with a newly established $30 price target.

The Thesis

The bullish case for Interface's stock is based on five factors, MacGregor said in the upgrade note. (See the analyst's track record here.) 

They are: 

• Organic orders rose 9.7 percent year-over-year in the second quarter to $290.9 million, which implies continued momentum after 8-percent growth in the fourth quarter of 2017 and 12.1 percent in the first quarter 2018.
• Investor concern over a fall in gross margins in Q2 can be attributed to transitory issues, including delayed productivity initiatives and a negative mix shift from the lower-margin Interface Services business.
• The company's LVT business should grow at 100 percent in 2018 and again in 2019, and the premium margin product should translate to topline growth.
• The acquisition of Nora Systems should be accretive to fiscal 2018 earnings per share by 3-6 cents and positively impact 2019 gross margins.
• The stock is trading at a P/E multiple of 13.9 times and EV/EBITDA multiple of 8.8 times versus the five year P/E average multiple of 17 times and EV/EBITDA multiple of 9.2 times.

Price Action

Interface shares were trading up 3.9 percent to $23.28 at the time of publication Tuesday. 

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