Here's Why Investors Must Retain RPM International Stock Now

RPM International Inc. RPM is benefiting from the efficient execution of its MAP 2025 initiatives, increased infrastructure demand, especially in international markets, and its focus on the repair and maintenance business.

The estimate for the Zacks Rank #3 (Hold) company's earnings for fiscal 2025 has trended upward in the past 30 days to $5.51 per share from $5.46. The estimate figure indicates growth rate of 11.5% from the figure reported a year ago. Although the estimate for first-quarter fiscal 2025 earnings has declined to $1.76 per share from $1.77 during the same time frame, the figure indicates 7.3% year-over-year growth.

The growth prospect is solidified with a VGM Score of A, backed by a Growth Score of A and a Value Score of B. The positive trend signifies bullish analyst sentiments, robust fundamentals and prospects of an outperformance in the near term.

Image Source: Zacks Investment Research

However, the company is facing headwinds in the form of increased costs and expenses and soft demand trends across two of four of its reportable segments. Shares of this manufacturer and marketer of specialty coatings, sealants and building materials have gained 16.7% in the past year compared with the Zacks Paints and Related Products industry's 31.4% growth.

Factors Supporting the Uptrend of RPM

MAP 2025 Plan: This operational improvement initiative was unveiled by RPM in August 2022 to maximize operational efficiencies and generate superior value for its customers, associates and shareholders through 2025. Despite the ongoing market uncertainties and challenging end-market scenario, RPM International realized notable benefits from the MAP 2025 initiatives.

During fiscal 2024, the company achieved 11.9% year-over-year growth in its adjusted EBIT of $941.6 million, with the metric reaching record levels for 10 consecutive quarters in the fiscal fourth quarter of 2024. The benefits were also reflected in the 14.9% growth of the annual adjusted earnings per share to $4.94. Moreover, as part of this strategic plan, the company recently consolidated 12 facilities, which demonstrates its continued momentum in generating efficiencies. For fiscal 2025, it is projecting $185 million of annualized MAP 2025 savings and expects to deliver solid year-over-year adjusted EBIT growth between the mid-single and the low-double-digit range.

Strong Infrastructure Demand Trends: RPM International has been witnessing increased infrastructure demand from its global markets for some time now. Across its Construction Products Group and Performance Coatings Group segments, net sales contributions seem to be increasing thanks to the sales volume growth in businesses providing engineered solutions targeting infrastructure, reshoring and high-performance building projects.

During fiscal 2024, geographically, the company's revenue growth was mainly backed by strong sales growth in Canada, Europe, Latin America, and Africa, the Middle East and Other Foreign.

Repair & Maintenance Business Bodes Well: RPM positions itself strongly in an uncertain economic scenario by focusing on its repair and maintenance business. In many a case, soft sales trends directly impact the top line. In such scenarios, this business helps uplift the top line and maintains growth trends of the company.

During fiscal 2024, the company could pave its way through market uncertainties mostly because of the strategic balance maintained through its mix of repair and maintenance along with its entrepreneurial spirit. Moving into fiscal 2025, it believes that this strategic balance will continue to support its uptrend.

What is Restricting the Prospects of RPM?

Softness in Certain Sales Expectations: RPM International has been witnessing soft demand from specialty original equipment manufacturer end markets, particularly those with exposure to residential housing, and reduced consumer purchases in do-it-yourself segments at retail outlets. This downtrend is reflected in the soft contributions from its Consumer Group and Specialty Products Group segments.

Given the declining trend, the company expects SPG and Consumer Group segments' net sales to decline year over year in the low-single digits in the first quarter of fiscal 2025.

Increased Cost & Expenses: RPM's business has been witnessing higher costs and expenses related to restructuring, divestitures and labor inflation. The company incurred $30 million of restructuring expenses during fiscal 2024 compared with $15.6 million in the year-ago comparable period. For fiscal 2025, it expects wage inflation to continue with moderate raw material cost increases in the second half of the year.

As of the end of fiscal 2024, the company expects to complete most MAP 2025 activities (by the end of fiscal 2025), with an estimated $81.5 million in additional future expenditures related to MAP 2025 implementation due to increases in expected severance and benefit charges of $46.6 million and expected facility closure accompanied with other related costs of $27.8 million.

Key Picks

Here are some better-ranked stocks from the Construction sector.

Comfort Systems USA, Inc. FIX currently sports a Zacks Rank #1 (Strong Buy).

FIX delivered a trailing four-quarter earnings surprise of 20.6%, on average. The stock has risen 86.8% in the past year. The Zacks Consensus Estimate for FIX's 2024 sales and earnings per share indicates growth of 29.4% and 50.9%, respectively, from the prior-year levels.

Howmet Aerospace Inc. HWM presently flaunts a Zacks Rank of 1. HWM delivered a trailing four-quarter earnings surprise of 10.9%, on average. The stock has surged 98.7% in the past year.

The Zacks Consensus Estimate for HWM's 2024 sales and EPS indicates increases of 12.6% and 39.1%, respectively, from a year ago.

Century Communities, Inc. CCS currently carries a Zacks Rank #2 (Buy). It has a trailing four-quarter earnings surprise of 35.6%, on average. Shares of CCS gained 45.5% in the past year.

The consensus estimate for CCS' 2024 sales and EPS implies increases of 17.9% and 31.5%, respectively, from the prior-year levels.

To read this article on Zacks.com click here.