Wells Fargo Upgrades Mohawk Industries On Valuation

Although competition remains intense in the flooring industry and the demand outlook continues to deteriorate, the pullback in Mohawk Industries, Inc’s MHK shares since July have rendered the stock valuation below historical averages, according to Wells Fargo.

The Analyst

Wells Fargo’s Truman Patterson upgraded Mohawk Industries from Underperform to Market Perform while keeping the price target at $115.

The Thesis

Wells Fargo analysts had downgraded the rating on Mohawk Industries to Underperform after the company reported its second-quarter earnings, Patterson said.

He added that competition in the flooring industry was intensifying during the second quarter, which were expected to result in further production cuts, inventory corrections and promotional activity. On the other hand, Mohawk Industries’ stock valuation was elevated at that time.

The company’s fundamental outlook remains unchanged since then and the stock may continue to “underperform BP peers,” Patterson wrote in a note.

He added, however, that the stock valuation now reflects “the uncertainty in the story,” with Mohawk Industries’ shares having decline 12.3% since July 27. Since then, the stock has underperformed other larger-cap BP companies by 890 basis points.

Following the downturn, the stock is trading 9% below historical averages on free cash flow yield, Patterson said.

Price Action

Shares of Mohawk Industries traded higher by 2.7% to $116.12 at time of publishing on Wednesday.

Related Links:

Benzinga's Top Upgrades, Downgrades For July 29, 2019

Wells Fargo Sees Downside Risk To Mohawk Industries' EPS, Margins In Second Half