Expectations for better volumes and modestly favorable pricing trends in the building and construction space should support revenue growth of 6% in 2012 and sector EBITDA to grow by 18% as a result of positive sales leverage, says Robert C. Wetenhall Jr., an Analyst at RBC Capital Markets.
“As we are looking at the space, we know things are rallying, so the key objective now is to assess whether the housing market has reached an inflection point in terms of the proper alignment between supply and demand. We are also focused on how the spring selling season,” he said.
Wetenhall says Armstrong World Industries, Inc. (AWI) continues to be the best idea in the sector in terms of risk-adjusted returns on an absolute basis. He points to the company’s cost-cutting story which has led to substantial margin improvement, as well as the long-term upside in its international component, which isn’t fully factored into the share price right now.
“And third, management has a strong history of paying extremely large special dividends as opposed to squandering surplus cash on acquisitions and other investments which don’t work,” Wetenhall said. “Accordingly, it’s been one of the best-performing stocks in the entire space during the last couple of years, and we think it’s going to continue to outperform both the sector and the broader market.”
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