The company recently reported Q3 results, where earnings and revenues beat estimates.

Given the strong FCF outlook (raised FY23 guide to a record $90 million-$95 million), the analyst expects stringent M&A requirements for the business to likely increase the probability of opportunistic buybacks or a dividend increase in the coming year, or both.

While management noted that inflationary pressures have primarily abated, a continued tepid macro view could lend to a mixed FY24 (next fiscal year), Garner adds.

Following the results, the analyst raised FY23 estimates from $2.15 to $2.45.

During Q3, each segment posted another quarter of sequential and y/y margin gains on operational/sourcing benefits over inflation and strong SG&A controls despite lighter volumes, the analyst adds.

Management reiterated its decision to pursue further debt paydown as its highest priority, as evidenced by the ~$25 million paydown during the quarter, bringing the company to net debt neutral, Garner notes.

The company reiterated its belief that the destocking trend has reduced, particularly in Europe, the analyst notes.

However, rising rates (leading to limited existing home turnover) and a potentially pandemic-driven pull-forward hangover could make a return to solid volume games challenging in the near term, Garner cautioned.

For FY23, the analyst increased revenue estimates from $1.123 billion to $1.128 billion.

Price Action:  NX shares are trading lower by 1.01% to $28.18 on the last check Wednesday.