1、North America Equity Research 09 December 2019J. R MorganBuilding Products2020 Outlook Slide Deck Available; Model/ITVR Update NoteHomebuilders & Building ProductsMichael Rehaut, CFA AC(1-212) 622-6696 HYPERLINK mailto:michael.rehautjpmorgan michael.rehautjpmorgan Bloomberg JPMA REHAUT Elad Hillman(

2、1-212) 622-6435elad.h 川 HYPERLINK mailto:manjpmchase manjpmchase Maggie Wellborn(1-212) 622-5909 HYPERLINK mailto:maggie.wellbornjpmchase maggie.wellbornjpmchase J.P. Morgan Securities LLCHomebuilders & Building ProductsMichael Rehaut, CFA AC(1-212) 622-6696 HYPERLINK mailto:michael.rehautjpmorgan m

3、ichael.rehautjpmorgan Bloomberg JPMA REHAUT Elad Hillman(1-212) 622-6435elad.h 川 HYPERLINK mailto:manjpmchase manjpmchase Maggie Wellborn(1-212) 622-5909 HYPERLINK mailto:maggie.wellbornjpmchase maggie.wellbornjpmchase J.P. Morgan Securities LLCThis morning, in conjunction with our Homebuilding & Bu

4、ilding Products 2020 Outlook Slide Deck (click here), we are publishing this note which reflects our updated estimates, price targets and ITVRs (investment thesis, valuation and risks) for our building products companies. Overall, following a solid rebound year so far in 2019, fueled by lower intere

5、st rates, we remain selective in our approach to the Building Products sector and continue to favor catalyst-driven ideas. We expect repair/remodel demand to continue to demonstrate a more moderate growth rate of 2- 4% in 2020, similar to 2018-19 and softer than the 5-6% growth seen during 2015-17,

6、given the current trends demonstrated by several demand drivers, including modest existing home sales growth, moderating job growth, consumer confidence still near peak levels (i.e., having more downside risk than upside), more modest home price appreciation and credit continuing to be mixed. As a r

7、esult, sales growth across the building products companies should rebound in 2020 but remain more moderate (similar to 2018 but less than 2015-17). Additionally, margins should also improve in 2020, but risks remain. Of note, while price/cost has turned the corner in 2019 and should remain positive

8、in 2020, we expect product mix to remain negative or at minimum be held in check in 2020 given our outlook for more moderate repair/remodel demand growth and home price appreciation, as well as a continued mix shift in the new home market towards entry-level. Lastly, we expect valuation multiples to

9、 remain constrained if not contract further, given our outlook for more moderate demand growth and home price appreciation as well as due to the ongoing maturing of the cycle. Regarding stock selection, we maintain our Overweight ratings on larger-caps SWK, FBHS and WHR as well as smaller-cap DOOR,

10、while our Underweight-rated names remain larger-cap MHK and smaller-cap BECN. Please join us for a conference call at 10:00am ET to discuss this report. Contact us or your J.P. Morgan salesperson for details.See page 30 for analyst certification and important disclosures.J.P. Morgan does and seeks t

11、o do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPE

12、RLINK :/ jpmorganmarkets jpmorganmarkets Risks to Rating and Price TargetWe believe the following three factors represent downside risks to our Neutral rating on MAS, and thus could drive underperformance relative to its peers: 1) Worse than expected success with MAS sales growth initiatives; 2) A m

13、ore inflationary raw material environment potentially negatively impacting Plumbing and Decorative segment margins below our expectations; and 3) continued challenges in the companys recently acquired lighting business.By contrast, we believe the following three factors represent upside risks to our

14、 Neutral rating on MAS, and thus could drive outperformance relative to its peers: 1) Better than expected success with MAS sales growth initiatives; 2) Accretive M&A driving upside to our EPS estimates; and 3) Lower raw material costs resulting in upside to our margin estimates.MasoniteShares O/S (

15、mn) 52-week range ($) Market cap ($ mn) Exchange rate2574.46-43.761,838.501.00Free float(%)97.7%3M - Avg daily vol (mn)0.163M - Avg daily val ($ mn)9.9Volatility (90 Day)25IndexRUSSELL2000BBG BUYIHOLDISELL6I3I0Shares O/S (mn) 52-week range ($) Market cap ($ mn) Exchange rate2574.46-43.761,838.501.00

16、Free float(%)97.7%3M - Avg daily vol (mn)0.163M - Avg daily val ($ mn)9.9Volatility (90 Day)25IndexRUSSELL2000BBG BUYIHOLDISELL6I3I0OverweightCompany DataYear-end Dec ($)FY17AFY18AFY19EFY20E(Prev)FY20E(Curr)FY21E(Prev)FY21E(Curr)Revenue ($ mn)2,0332,1702,1772,2062,206-2,273Adj. EBITDA ($ mn)25626827

17、9304312-328EBITDA margin12.6%12.3%12.8%13.8%14.1%-14.4%Adj. net income ($ mn)999356105110-125Adj. EPS ($)3.323.693.484.124.35-4.90BBG EPS ($)3.473.713.44-4.42-5.27Reported EPS ($)5.093.693.484.124.35-4.90DPS ($)-Dividend yield-Adj. P/E21.919.720.917.716.8-14.9Masonite International Corp. (DOOR;DOOR

18、US)Source: Company data, Bloomberg, J.P. Morgan estimates.Investment Thesis, Valuation and RisksMasonite International Corp. (Overweight; Price Target: $84,00)Investment ThesisWe believe DOORs leading position in a consolidated industry is sustainable given substantial barriers to entry. Importantly

19、, we believe further EBITDA margin expansion potential exists, which is not fully reflected by DOORs valuation, in our view, driven by further price gains, improving mix, continued productivity gains and its several additional margin improvement strategies over the next two years. Hence, we rate the

20、 stock Overweight.ValuationAs we introduce our 2021 estimates, we adjust our Dec. 2020 price target to now be based on a target current multiple against our 202IE EBITDA. Specifically, we raise our Dec. 2020 price target to $84.00 from $76.00, which is now based on a target EV/EBITDA multiple of rou

21、ghly 8.5x our 202IE EBITDA. Our target multiple is roughly in-line with the stocks current valuation against our 2020E EBITDA and with our prior target multiple of 8.5x our 2020E EBITDA , as while we expect some multiple compression in general across our building products universe due to the ongoing

22、 maturing of the cycle, we also believe relative upside potential to DOORs valuation exists, as the companys current valuation does not fully reflect the full potential for margin improvement over the next 1-2 years, in our view.Risks to Rating and Price TargetWe believe the following factors repres

23、ent downside risks to our Overweight rating and December 2020 price target for DOOR, and thus could drive underperformance relative to its peers: Weaker than expected pricing power in the U.S., causing projected price increases to not be effective, which could result in less than expected revenue gr

24、owth and EBITDA margin expansion.Slower than anticipated introduction of higher margin new products and changes in customer preferences to greater value-add products, resulting in a lower proportion of higher margin sales.Weaker than expected recovery in the U.S. and U.K. residential markets, to whi

25、ch DOOR has 60% and 16% exposure, respectively, could result in less than expected revenue growth.Less than expected synergies from acquisitions. Financial results could be negatively impacted if they are not able to effectively integrate acquisitions.Mohawk IndustriesUnderweight Mohawk Industries (

26、MHK;MHK US)2000 Source: Company data, Bloomberg, J.P. Morgan estimates.Company DataYear-end Dec ($)FY17AFY18AFY19EFY20EFY21E(Prev)FY21E(Curr)Shares O/S (mn)7252-week range ($)156.60-Revenue ($ mn)9,4919,98410,01310,199-10,403108.93Adj. EBITDA ($ mn)1,8631,7111,4831,637-1,703Market cap ($ mn)10,042.2

27、2EBITDA margin19.6%17.1%14.8%16.1%-16.4%Exchange rate1.00Adj. net income ($ mn)1,019921725780-831Free float(%)82.4%Adj. EPS ($)13.6112.3310.0010.83-11.543M - Avg daily vol (mn)0.77BBG EPS ($)13.5112.299.9610.70-11.893M - Avg daily val ($102.8Reported EPS ($)12.9911.538.8410.83-11.54mn)DPS ($)-Volati

28、lity (90 Day)31Dividend yield-IndexRUSSELLAdj. P/E10.211.313.912.8-12.0BBG BUY舊OLDISELL8|7|4Investment Thesis, Valuation and RisksMohawk Industries (Underweight; Price Target:$136.00)Investment ThesisWhile MHKs valuation is less expensive relative to its recent history 一 trading at roughly 13x and 1

29、2x our 2020E and 202IE EPS, respectively, and roughly 7.5x our 2020E EBITDA, compared to its 5-year current and forward P/E averages of roughly 16x and 14.5x and its 5-year EV/EBITDA average roughly lOx - we also point to valuation ranges during the last cycle of 10-15x on a P/E basis and 6-9x on an

30、 EV/EBITDA basis. We believe MHKs multiple will remain constrained and likely contract further as it continues to face several fundamental headwinds over the next 2-3 quarters, including softer demand, negative price/mix, reduced production levels and lower margin new capacity coming online. Hence,

31、we continue to expect the stock to lag its peers and as a result reiterate our relative Underweight rating.ValuationAs we introduce our 2021 estimates, we adjust our Dec. 2020 price target to now be based on a target current multiple against our 202 IE EBITDA. Specifically, we raise our Dec. 2020 pr

32、ice target to $136 from $130, which is now based on a target EV/EBITDA multiple of roughly 7x our 202IE EBITDA, applying our 2020E average net debt balance. While we note that our current target EV/EBITDA multiple is in-line with our prior target multiple of 7x our 2020E EBITDA, we note that it is m

33、odestly below MHKs current valuation of roughly 7.5x our 2020E EBITDA, which reflects our broader view for building products multiples to remain constrained if not contract further given our outlook for repair/remodel demand in 2020 to remain at a more moderate growth rate, negative product mix to p

34、ersist across various subsectors, home price appreciation to stabilize at its more moderate rate as well as given the ongoing maturing of the cycle. Moreover, we believe MHK will continue to be impacted by several challenges in the near to medium term in North America and Europe, including softer de

35、mand, negative price/mix, reduced production levels and lower margin new capacity coming online against a softer demand backdrop.Risks to Rating and Price TargetWe believe the following positive drivers could result in MHK outperforming its peer group over the next 12 months: 1) a material decline i

36、n oil and resin prices over the next 12 months; 2) a moderation or even reversal of the recent negative product mix trends seen in the companys ceramic and carpet businesses; 3) higher than expected margins in 2020 as the companys new capacity comes online faster and at better than expected profitab

37、ility.Owens CorningNeutralShares O/S (mn) 52-week range ($) Market cap ($ mn) Exchange rate11068.72-40.647,311.701.00Free float(%)98.5%3M - Avg daily vol (mn)1.913M - Avg daily val ($ mn)118.0Volatility (90 Day)25IndexRUSSELL2000BBG BUYIHOLDISELL111910Company DataYear-end Dec ($)FY17AFY18AFY19EFY20E

38、FY21E(Prev)FY21E(Curr)Revenue ($ mn)6,3847,0577,1067,279-7,434Adj. EBITDA ($ mn)1,1081,2541,2751,323-1,354EBITDA margin17.4%17.8%17.9%18.2%-18.2%Adj. net income ($ mn)499544500543-565Adj. EPS ($)4.414.884.565.03-5.33BBG EPS ($)4.354.794.615.25-6.07Reported EPS ($)2.564.894.105.03-5.33DPS ($)-Dividen

39、d yield-Adj. P/E15.113.614.613.2-12.5Owens Corning (OC;OC US)Source: Company data, Bloomberg, J.P. Morgan estimates.Investment Thesis, Valuation and RisksOwens Corning (Neutral; Price Target:$70.00)Investment ThesisWe maintain our relative Neutral rating on OC, as while we view its valuation of roug

40、hly 8x our 2020E EBITDA and 13x our 2020E EPS as inexpensive relative to its 5-year averages of roughly 8x and 15x, respectively, at the same time, we expect lower EBIT in 2019 and only modest growth in 2020 vs. 2018, while additionally highlight the volatility in Roofing margins over the last sever

41、al years as well as Composites9 still near record margins.ValuationAs we introduce our 2021 estimates, we adjust our Dec. 2020 price target to now be based on a target current multiple against our 202IE EBITDA. Specifically, we raise our Dec. 2020 price target to $70.00 from $67.00, which is now bas

42、ed on a target EV/EBITDA multiple of roughly 7.7x our 202IE EBITDA. Our target multiple is roughly in-line with the stocks current valuation against our 2020E EBITDA and with our prior target multiple of 7.7x our 2020E EBITDA, as while we expect some multiple compression in general across our buildi

43、ng products universe due to the ongoing maturing of the cycle, we also view OCs valuation as reasonable given its discount to the sector and its longer-term averages.Risks to Rating and Price TargetWe believe the following positive/negative factors could result in OC outperforming/ underperforming i

44、ts peer group over the next 12 months: 1) Roofing margins expanding/contracting meaningfully next year due to stronger/weaker than expected pricing; 2) Global industrial production improves/weakens more than expected, thereby positively/negatively impacting Composites demand and pricing; and 3) U.S.

45、 new residential construction strengthens/weakens more than expected, thereby boosting/suppressing Insulation demand and pricing versus our estimates.PGT InnovationsNeutralNeutralShares O/S (mn)5952-week range ($)18.67-13.30Market cap ($ mn)826.21Exchange rate1.00Free float(%)96.0%3M - Avg daily vol

46、 (mn)0.393M - Avg daily val ($6.5mn)Volatility (90 Day)41IndexRUSSELL2000BBG BUYIHOLDISELL4|4|0Company DataYear-end Dec ($)FY17AFY18AFY19EFY20EFY21E(Prev)FY21E(Curr)Revenue ($ mn)511699735772-811Adj. EBITDA ($ mn)84124124139-146EBITDA margin16.5%17.7%16.9%18.0%-18.0%Adj. net income ($ mn)31644756-62

47、Adj. EPS ($)0.611.180.790.96-1.05BBG EPS ($)0.561.170.850.92-1.03Reported EPS ($)0.771.000.750.96-1.05DPS ($)-Dividend yield-Adj. P/E23.011.817.614.6-13.2PGT Innovations, Inc. (PGTI;PGTI US)Source: Company data, Bloomberg, J.P. Morgan estimates.Investment Thesis, Valuation and RisksPGT Innovations,

48、Inc. (Neutral; Price Target: $16,00)Investment ThesisPGTI currently trades at roughly 14.5x and 13x our 2020E and 2021E Operating EPS, respectively, roughly in-line with our universe averages. On an EV/EBITDA basis, the stock trades at roughly 8x and 7.5x our 2020E and 202IE EBITDA, respectively, ro

49、ughly at a roughly 15% discount to our universe averages. Hence, we believe PGTIs valuation is reasonable in the context of the companys long term above average sales growth prospects and mid-teens operating margins, despite a softer near-term organic growth outlook. As a result, we rate PGTI Neutra

50、l.ValuationAs we introduce our 2021 estimates, we adjust our Dec. 2020 price target to now be based on a target current multiple against our 202IE EBITDA. Specifically, we lower our Dec. 2020 price target to $16.00 from $16.50, which is now based on a target EV/EBITDA multiple of roughly 8x our 202I

51、E EBITDA. While our target EV/EBITDA multiple is roughly in-line with the companys current valuation against our 2020E EBITDA, we note that it is modestly below our prior target multiple of 9x our 2020 EBITDA, which reflects our broader view for building products multiples to remain constrained if n

52、ot contract further given our outlook for repair/remodel demand in 2020 to remain at a more moderate growth rate, negative product mix to persist across various subsectors, home price appreciation to stabilize at its more moderate rate as well as given the ongoing maturing of the cycle.Risks to Rati

53、ng and Price TargetWe believe the following three factors represent upside/downside risks to our investment rating and price target, which in turn could drive relative outperformance/underperformance: 1) better/worse than expected sales growth, due to better/worse than expected penetration of impact

54、-resistant windows in FL and adoption of indoor/outdoor living in the West; 2) better/worse than expected gross margins as the company more/less quickly realizes cost synergies from the Western acquisition; 3) an increase/decrease in severe weather events in FL, which in turn would cause an increase

55、/decrease in consumer awareness and adoption of impactresistant windows.Stanley Black & DeckerOverweightOverweightShares O/S (mn)15052-week range ($)162.15-110.54Market cap ($ mn)23,865.81Exchange rate1.00Free float(%)99.6%3M - Avg daily vol (mn)1.013M - Avg daily val ($151.7mn)Volatility (90 Day)31

56、IndexS&P 500BBG BUYIHOLDISELL131710Company DataYear-end Dec ($)FY17AFY18AFY19EFY20EFY21E(Prev)FY21E(Curr)Revenue ($ mn)12,96713,98214,53314,966-15,450Adj. EBITDA ($ mn)2,3242,4092,5342,684-2,839EBITDA margin17.9%17.2%17.4%17.9%-18.4%Adj. net income ($ mn)1,1371,2301,2621,362-1,488Adj. EPS ($)7.468.1

57、48.408.90-9.72BBG EPS ($)7.418.148.419.01-10.00Reported EPS ($)8.054.276.908.90-9.72DPS ($)2.422.582.762.95-3.16Dividend yield1.5%1.6%1.7%1.9%-2.0%Adj. P/E21.319.518.917.8-16.3Stanley Black & Decker Inc (SWK;SWK US)Source: Company data, Bloomberg, J.P. Morgan estimates.Investment Thesis, Valuation a

58、nd RisksStanley Black & Decker Inc. (Overweight; Price Target: $181.00)Investment ThesisWe rate SWK Overweight, based on our outlook for continued solid execution yielding solid organic sales growth (driven in turn by several initiatives), the successful management of headwinds via cost and pricing

59、actions as well as upside potential from future accretive FCF deployment via acquisitions and share repurchase. We view the stocks valuation, currently trading at roughly 12x and 1 lx our 2020E and 202IE EBITDA, respectively, as reasonable if not attractive, as while it represents material premiums

60、against many of our building products companies, at the same time, it represents discounts of 10-20% against several diversified industrial companies with similar product exposures, and hence we believe appropriately reflects the companys positive sales growth drivers and solid execution, in our vie