Masonite's Margins To Remain Strong Despite Demand Issues, Analyst Highlights Acquisition Synergies, Robust FCF

Stephens analyst Trey Grooms reiterated an Overweight rating on Masonite International Corporation DOOR, raising the price target to $130 from $110.

The company recently reported Q2 results, where net sales declined 3% year over year due to continued softness in end-market demand.

The analyst notes that EBITDA was ahead of expectations, but FY23 guidance was reiterated as overall end-market demand is progressing as expected with better new residential and softer R&R.

The analyst adds that DOOR's continued progress on internal initiatives is starting to bear fruit, driving margin expansion from cost reduction efforts and generating robust FCF from lowering working capital levels.

While prices could see modest declines in 2H, margins should still expand year-over-year from the further realization of Endura acquisition synergies and cost-outs, Grooms adds. 

However, the analyst cautions of the company's challenging demand environment looming large.

For Q3, the analyst lowered sales estimates to $702.6 million (from $712.8 million), adj. EBITDA to $112.1 million (from $113.4 million) and EPS estimate to $2.08 (from $2.16). 

For FY23, Grooms lowered sales estimate to $2.84 billion (from $2.86 billion), adj. EBITDA to $430.5 million (from $429.5 million) and EPS estimate to $7.70 (from $7.73).

For FY24, the analyst lowered sales estimates to $2.97 billion (from $2.99 billion)—however, FY24 adj. EBITDA is raised to $464.2 million (from $453.4 million), and the EPS estimate is raised to $8.68 (from $8.47).

Price Action: DOOR shares closed lower by 0.69% to $104.74 on Thursday.