EUR 850.00 For Business Accounts Only

Morningstar | Masco Encountered Some Challenges in 2018, But We Expect Stronger Performance in 2019

We think Masco’s financial performance over the next decade will be as much of a self-help story as it is a story of improving end markets. Masco almost entirely refreshed its senior executive management team in 2014. Since then, it has taken significant measures to build a stronger and more consistent business, including spinning off its more cyclical installation business to shareholders, executing on cost-reduction initiatives, realigning its cabinets business to focus on more profitable channels, and shoring up its balance sheet. Masco is now ready to embark on its well-articulated growth strategies across all of its business lines, which includes organic growth initiatives, opening greenfield operations, and business acquisitions. Masco has historically been a notable free cash flow producer, and we think its self-help actions will serve to improve the stability and predictability of future cash flows, which will be deployed across a balanced capital-allocation strategy that includes reinvesting in the company’s businesses, acquiring complementary or adjacent businesses, increasing the dividend, and opportunistically repurchasing shares.The health of the housing market and repair and remodel, or R&R, spending in the United States are major drivers of Masco’s financial performance. After the spin-off of its installation segment in 2015, Masco reduced its exposure to new-home construction by almost 40% and increased its exposure to more resilient R&R end markets by 15% (sales mix is now 83% R&R and 17% new-home construction). We remain bullish on new-home construction, which we see peaking at about 1.6 million starts in 2022 before fading to the long-run average near 1.4 million starts, which is still about 10% higher than our projection for 2018 starts. With an improving housing market, we also expect solid R&R spending, so we see a nice growth runway for Masco over at least the next five years as the company capitalizes on improving end markets and internal growth initiatives.