Stifel Upgrades Mohawk Industries, Expects Margins To Improve Through 2019

Mohawk Industries, Inc. MHK shares have been under pressure over the past several months due to downward revisions to the company’s outlook.

While the stock reflects the possibility of further downward revisions in the company’s earnings, margins are likely to improve sequentially through 2019, according to Stifel.

The Analyst

John Baugh upgraded Mohawk Industries from Hold to Buy and raised the price target from $135 to $180.

The Thesis

Following the recent pressure, the share price provides an attractive entry point, Baugh said in the Wednesday upgrade note. (See his track record here.) 

The company’s margins seem to have bottomed in the first quarter and could expand through the year, the analyst said.

Inflation, which had adversely impacted margins for many quarters, has recently eased, he said. 

Moreover, major initiatives have been taken by Mohawk Industries to reduce its manufacturing cost, Baugh said. The company has reduced capacity where appropriate, shifting production to luxury vinyl tile and adjusting production in-line with volumes, he said. 

A recent meeting with management revealed that the two luxury vinyl tile plants completed their start-up phase, meaning that both facilities are now operating above breakeven levels, the analyst said.

While efforts were needed to increase throughput and bring margins closer to the targeted levels, there are unlikely to be downside surprises, according to Stifel. 

Price Action

Shares of Mohawk Industries had risen nearly 3 percent to $140.00 at the time of publishing on Thursday morning.

Related Links:

10 Biggest Price Target Changes For Thursday

Benzinga's Top Upgrades, Downgrades For May 16, 2019