RBC, Baird React To Jury Ruling In Jeld-Wen Antitrust Litigation

Window and door manufacturer Jeld-Wen Holding Inc JELD was on the losing end of a lawsuit last week. 

A U.S. District Court jury in the Eastern District of Virginia ruled that Jeld-Wen must sell its Towanda, Pennsylvania doorskin plant in order to restore competition in the marketplace, according to a statement by the lawsuit's plaintiff, the doorskin company Steves & Sons. 

The ruling prompted two research firms to revise their outlook on Jeld-Wen to the downside. 

The Analysts

Baird's Timothy Wojs downgraded Jeld-Wen Holding from Outperform to Neutral with a price target lowered from $34 to $23.

RBC Capital Markets' Mike Dahl maintained an Outperform rating on Jeld-Wen's stock with a price target lowered from $35 to $28.

Baird Sees Possible Worst-Case Outcome

Jeld-Wen is expected to appeal any negative ruling, but the forced divestiture of its Towanda facility is a worst-case scenario, Wojs said in the downgrade note.

The ruling could notably change the entire dynamics of the interior door market over time, as it would allow a third manufacturer to enter the market in North America, the analyst said.

While this would take time to play out, the risk of new competition is now "more apparent" and could impact the interior door market, which accounts for 15 percent of total revenue, Wojs said. 

While proceeds from a forced divestiture could help offset the impact of lost revenue due to new competition, the near-term picture is unclear, the analyst said, adding that the stock could be rangebound until it has better visibility. 

RBC: Manageable Impact

The potential divestiture of the Towanda facility is a negative for Jeld-Wen and could translate to the loss of up to 33 percent of the company's global doorskin capacity, RBC's Dahl said in a note.

Yet the sale of the facility will generate a "significant" amount of capital that could be allocated to improving productivity in other facilities; reviving an idled skin plant; other growth investments or even incremental cash returns to investors, the analyst said. 

Jeld-Wen's prospects for improvements in profitability over the near-term from investing sale proceeds is significant, which implies the overall outcome from a forced divestiture is manageable, Dahl said.

Nevertheless, the news report will be seen as a headwind and could impact the stock's multiple moving forward, Dahl said. 

Price Action

Jeld-Wen shares were down 0.95 percent at $23.86 at the time of publication Monday. 

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