Broker opinions are divided on Reliance Worldwide with company revenues largely beholden to restoration & renovation activity.
-Brokers are divided on the outlook for
-Goldman Sachs believes shares are oversold
-While Jarden expects lower revenue growth
-Shares are trading down over -55% year-to-date
Goldman Sachs believes shares in global plumbing goods supplier
Shares are trading down over -55% year-to-date and closed yesterday at
At the same time, the Buy-rated broker lowers its near-term volume outlook and reduces its 12-month target price to
Between FY17 and FY22 the share price more than doubled as the company experienced revenue growth of 20% per year (US$ terms), driven by acquisitions, market share gain in the plumbers' truck and shelf space at major US retail channel partners such as Home Depot and Lowes.
Goldman Sachs points out restoration & renovation (R&R) activity is the single largest driver of revenue for Reliance, which is largely driven by movements in home prices.
The analysts expect R&R spend in the US to increase 18% in 2022 before declining by -3% in 2023. However, these figures are flattered by inflation, with volumes expected to decline by -2% in 2022 and -6% in 2023.
New housing starts for 2022 and 2023 in the US are also forecast by Goldman Sachs to decline by -4% and -21%, respectively.
The broker's focus is upon the US, as around 60% of the company's revenue and circa 50% of earnings (EBITDA) are generated in the
Goldman Sachs also expects retail channel volumes will decline for Reliance by around -5% in FY23 and notes little evidence of inventory destocking so far.
In late November, Jarden also began covering Reliance, but on a less optimistic note than Goldman Sachs, with a Neutral rating and
This broker noted potential downside risks to the company's earnings, especially in FY24, due to falling new starts, rising cancellations of US new-build contracts and falling US existing home sales, which lead remodeling demand by four to five quarters.
Both Goldman Sachs and Jarden sit outside the FNArena database, which has an average target price (seven brokers) of
Jarden noted swing factors in demand for the company derive from new starts and remodelling activity and the broker pointed to a growing decline in existing home sales in the US,
Instead of the historical 20% per annum revenue growth noted above, the broker forecasts flat growth between FY23 and FY25, due to the housing down cycle and challenges to gain more market share and shelf space for the company's mature products.
Jarden has a preference for Overweight-rated Boral ((BLD)) and CSR ((CSR)) in the
Other broker opinions
The most bearish research on Reliance Worldwide in the FNArena database comes from Citi, with a Sell rating and a
This broker commenced research in
An original target of $4.00 was set and has been ratcheting lower since.
Following the company's third quarter results for FY22, the broker lowered its earnings forecasts to reflect lower margin guidance and softer margins for US plumbing parts manufacturer EZ-Flo. The target was reduced to
FY22 results in August led to only a slight further fall in target to
The latest
More positively, the broker noted an appreciating US dollar had cushioned the blow and EZ-Flo margins remained strong.
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