BofA Securities has updated its outlook on RPM International (NYSE: NYSE:RPM), increasing the price target to $122.00 from the previous $108.00.
Despite the higher price target, the firm maintained its Underperform rating on the stock. The adjustment follows RPM International's fiscal fourth-quarter earnings per share (EPS) of $1.84, which exceeded both BofA Securities' estimate of $1.75 and the consensus estimate of $1.74.
RPM International's earnings growth was attributed to a significant reduction in costs of goods sold (COGS), which decreased by 4%, and a modest 1% reduction in selling, general, and administrative expenses (SG&A).
These reductions contributed to a mid-single-digit (MSD) growth in earnings before interest and taxes (EBIT), despite a 2% year-over-year decline in sales. The company's organic sales saw a slightly smaller decrease of 1%.
The reduction in COGS was partially due to a decrease in raw material prices, but the majority came from productivity initiatives under the company's three-year MAP 2025 program, as well as the impact of lower sales volume, which fell by 1.5% year-over-year. RPM International also reported consolidating 13 facilities into other locations during the quarter, with four consolidations already completed.
The incremental weakness in top-line performance was largely attributed to softer consumer and housing markets, leading to destocking. This particularly affected the Consumer segment, with a 6% year-over-year decline in sales, and the Performance segment, which saw a 2% decrease.
The Specialty segment also experienced a sales decline of 4%, mainly due to softness in specialty original equipment manufacturers (OEMs) and high customer inventories in disaster restoration. However, the Construction segment saw a 1% year-over-year increase in sales, driven by demand for high-performance products, including turnkey roofing and wall systems.
BofA Securities' cautious stance on RPM International has been influenced by the company's challenging end markets. However, the firm acknowledged underestimating RPM's success in enhancing productivity, as stated by the analyst, "Our cautious view on RPM has been driven by their challenging end markets, but we underestimated the company's success in productivity."
In other recent news, RPM International has experienced a series of significant developments. The company's recent financial performance showcased a robust quarter, with enhanced margins attributed to the company's MAP 2025 initiative and earnings per share growth driven by debt reduction. Notably, RPM International reported strong quarterly earnings, with a mid-single-digit percentage increase in earnings before interest and taxes (EBIT) year-over-year, surpassing Mizuho Securities' previous estimate.
In terms of analyst adjustments, BMO Capital increased its price target on the stock to $149 from the previous $139 while maintaining an Outperform rating. Similarly, Wells Fargo revised its earnings per share (EPS) estimate for RPM International for the second fiscal quarter of 2025, marking a year-over-year increase of 9%. RBC Capital Markets also adjusted its price target for RPM International to $126.00 from $120.00 and sustained a Sector Perform rating on the stock.
InvestingPro Insights
RPM International's recent performance and BofA Securities' updated outlook can be further contextualized with real-time data from InvestingPro. Despite the challenges in end markets noted by BofA, RPM's financial metrics paint a picture of resilience and long-term stability.
InvestingPro data shows that RPM has a market capitalization of $16.44 billion and trades at a P/E ratio of 25.16. This valuation is supported by the company's consistent profitability, as evidenced by an InvestingPro Tip indicating that RPM has been profitable over the last twelve months. Moreover, the company's financial health appears robust, with liquid assets exceeding short-term obligations.
RPM's commitment to shareholder returns is noteworthy. An InvestingPro Tip highlights that the company has maintained dividend payments for an impressive 52 consecutive years, demonstrating a strong track record of financial stability. This is further reinforced by a dividend yield of 1.44% and a dividend growth rate of 9.52% over the last twelve months.
The company's recent stock performance has been strong, with a 19.49% price total return over the past three months and a 39.95% return over the past year. This aligns with another InvestingPro Tip suggesting that RPM has shown a strong return over the last three months and is trading near its 52-week high.
While BofA Securities maintains an Underperform rating, it's worth noting that InvestingPro lists 12 additional tips for RPM, providing a more comprehensive view of the company's prospects. Investors seeking a deeper analysis may find value in exploring these additional insights on the InvestingPro platform.
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