Worthington Industries’ (WOR) exposure to nonresidential construction could rise to 20% in a better construction market, adding $0.40 extra earnings power, and the company is also seeing additional upside through its internal cost takeout program, says Arun Viswanathan, Senior Equity Analyst at Longbow Research.
“Worthington is currently at about 11%, but it could be 20% in the better market, which it was back in 2007, 2008. So in that case…we see about anywhere from $0.20 to $0.40 of extra earnings power to Worthington; that’s about 10%,” Viswanathan said.
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WOR has a flexible business model which makes the company less exposed to weak steel pricing, as WOR passes through price increases and decreases to its customers. Additionally, WOR is exposed to other strong markets and is continuing its internal cost takeout program that should give WOR additional upside in the future, Viswanathan says.
“They’re very spot-oriented, and then they do have exposure to strong markets other than construction as well…in case of Worthington, you have large exposure to auto, which is about 50% of their steel business is in autos,” Viswanathan said. “Worthington [also] has a particular program called Transformation, which has really helped their SG&A cost come down in the last couple of years, and we see that they are only about 40% through this program, so there is quite a bit of additional upside there.”
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