Jeffries Pounds the Table on Armstrong World Industries Stock
Stock Analysis & Ideas

Jeffries Pounds the Table on Armstrong World Industries Stock

There’s no ceiling in sight for the potential of Armstrong World Industries (AWI). The global producer of ceiling systems provider hosted its 2022 Investor Day earlier this month, with the big announcement being its five-year growth targets.

AWI has been doing well in keeping up with its growth initiatives, including its Healthy Spaces innovation, helped along by tailwinds of secular trends towards healthy, sustainably built spaces. Management, therefore, is expecting a 5-year outlook of 10-13% in revenue growth, adj. EBITDA growth of 12-15%, and adj. diluted EPS growth of 15-20%.

Armstrong World is also optimistic about the potential of its digital investments’ contribution to growth. Q3 of 2021 saw the company pumping $2 million into several digital initiatives, including digital design and pre-construction services.

AWI leadership isn’t the only one with hopeful eyes on the horizon, as Philip Ng of Jeffries brings forward some reasons why Armstrong may improve its outlooks. For a start, he praises the pricing power of the company, which has “demonstrated its ability to get pricing ahead of inflation, even in a flat-to-down volume environment, with AUV up 3-5% in the last 5 years,” the 5-star analyst notes.

Next up is potential for volume expansion, in which AWI has shown proficiency over the past 5 years delivering around CAGR earnings of 10% in a “flattish” volume environment. Ng points out that “An inflection in volumes would change the narrative & drive multiple expansion,” assuming AWI meets its volume growth guidance reported at the Investor Day.

What’s more, given its U.S.-centric activities, “AWI is well insulated & poised to outperform,” says the Jeffries analyst. Armstrong World has decreased its international business, and since over 90% of sales are in the U.S., AWI is adequately shielded from geopolitical tensions.

Ng summarizes his opinion of the company’s standing: “While we’ve been on the sidelines due to valuation & muted vols, in this environment we believe AWI should outperform, and this pullback has created a buying opportunity in one of the highest-quality names.”

On to the bottom line for investors, Ng upgrades AWI stock to a Buy, while raising his price target from $101 to $111, which implies a one-year upside of 17%. (To watch Ng’s track record, click here)

Overall, AWI brings out a mix of opinions on Wall Street. As of now, with 1 Buy, 1 Hold, and 2 Sells, the analyst consensus rates the stock a Hold. The forecast calls for one-year gains of ~12%, considering the average price target stands at $105. (See AWI stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.


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