On Wednesday, Piper Sandler adjusted its stance on Leggett & Platt (NYSE:LEG) stock, a diversified manufacturer, moving the stock's rating from Underweight to Neutral. The firm also increased the price target to $13.00, up from the previous $11.00.
This change reflects a renewed confidence in the company's earnings potential for the year 2025, driven by anticipated cost savings and an improved outlook for the Bedding segment.
The analyst from Piper Sandler noted that despite a recent performance that fell short of expectations and a downward revision of guidance, there is an expectation for a year-over-year earnings increase in 2025. This is attributed to a combination of cost reductions and better fundamentals in the company's Bedding division.
The analyst pointed out that Leggett & Platt's shares have seen a significant decline of 63% since mid-December 2022, underperforming the S&P 500, which has gained 48% during the same period.
The previous concerns included market share losses in the Bedding sector and margin pressures due to the normalization of the company's metal margin. However, these issues are reportedly subsiding. Meanwhile, new challenges are arising in the Automotive and Furniture segments.
Despite these emerging issues, Leggett & Platt has implemented cost-cutting measures amounting to $35 million to $40 million for 2025. These savings are expected to contribute to modest year-over-year EBIT growth next year.
The price target adjustment is based on an increased multiple assumption, moving from 9.5x to 12x. This revision takes into account the company's cost-saving initiatives and the planned sale of its Aerospace business, which the analyst believes will support the company's financial improvement.
In other recent news, Leggett & Platt experienced a downturn in its third-quarter earnings, which fell short of analyst projections. The company reported adjusted earnings per share of $0.32, missing the analyst consensus of $0.33, and a revenue of $1.1 billion, a 6% decrease from the same period the previous year.
In light of these results, Leggett & Platt revised its full-year 2024 guidance, now expecting adjusted earnings per share of $1.00 to $1.10 and a reduced revenue forecast of $4.3-$4.4 billion.
These recent developments are attributed to persistent weakness in residential end markets and challenges in the automotive business. The company reported a 6% decrease in organic sales, with notable declines in Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products segments. President and CEO Karl Glassman anticipates this weak demand to continue into the fourth quarter.
Despite these challenges, Leggett & Platt made progress in its restructuring initiatives, paying down $124 million of debt in the third quarter. The company now projects to realize $50-$60 million in annualized EBIT benefit from these initiatives by late 2025.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Leggett & Platt's financial situation, providing context to Piper Sandler's upgraded outlook. Despite the company's recent challenges, InvestingPro Tips highlight that LEG has maintained dividend payments for 54 consecutive years, demonstrating a commitment to shareholder returns even in difficult times. This long-standing dividend policy aligns with the company's high shareholder yield, another positive signal noted by InvestingPro.
However, the company's financial metrics reveal some ongoing struggles. With a market capitalization of $1.7 billion and a negative P/E ratio of -3.41 over the last twelve months, LEG's profitability has been under pressure. This is further evidenced by the revenue decline of 7.57% and an EBITDA drop of 27.18% over the same period.
On a more optimistic note, InvestingPro Tips suggest that net income is expected to grow this year, and analysts predict the company will return to profitability. This aligns with Piper Sandler's view on potential earnings improvements in 2025. Additionally, LEG's liquid assets exceeding short-term obligations provide some financial flexibility as the company navigates its turnaround efforts.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Leggett & Platt, providing a deeper understanding of the company's financial health and market position.
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