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Leggett & Platt, Inc.’s Growth Plans Help Sustain LEG Momentum

Solid momentum should allow LEG stock room to run in 2017

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Leggett & Platt, Inc. (LEG) has seen solid momentum in its shares on a year-to-date basis, particularly when compared with the Zacks categorized Consumer Discretionary sector. Evidently, the company has surged 18.4% year to date, surpassing the latter’s 7% growth.

Let’s see what drove this Zacks Rank #3 (Hold) stock’s outperformance.

Leggett remains focused on making investments to develop business portfolio, strategic initiatives to drive growth, disciplined capital allocation and superb earnings history.

Leggett remains on track with its long-term strategic plan, and is progressing with its aim to achieve 4–5% top-line growth annually. Notably, the company has successfully completed the first two parts of its strategic plan.

The first part was to divest low-performing businesses, while the second focused on an improvement in margins and returns. Currently, the company is executing the third part of the plan, which targets top-line growth. We believe that Leggett has significant operating leverage to accomplish this phase of the plan.

Additionally, the company is making investments in areas that provide it with a competitive edge. Some of the steps taken to enhance its business portfolio include the acquisition of a minor stake in an Asian automotive joint venture, buying three U.S. innerspring component production facilities of Tempur Sealy, and expansion in China to sustain rapid growth of its automotive business.

Further, Leggett has always maintained a disciplined capital allocation strategy, as part of which it uses excess cash to undertake shareholder-friendly moves. Notably, the company raised its quarterly dividend in May 2016, thus marking its 45th straight annual hike and highlighting its commitment to shareholders. Moreover, Leggett is rationalizing its capital expenditures, including store-remerchandising efforts to improve its return on investment. We believe that the company’s strong liquidity position will continue to drive growth.

Backed by its solid growth initiatives and financials, the company also marked its fifth consecutive positive earnings surprise in third-quarter 2016. Moreover, management raised its full-year 2016 earnings outlook following the quarter, as it continues to anticipate generating record earnings per share, robust EBIT margin and enhanced cash flows this year. These factors highlight Leggett’s growth prospects, which also led to an uptrend in the Zacks Consensus Estimate for 2016, over the past 60 days.

LEGGETT & PLATT Price and Consensus

LEGGETT & PLATT Price and Consensus | LEGGETT & PLATT Quote

However, Leggett’s significant global presence exposes it to adverse currency movements. Currency woes, divestitures, lower volumes and raw material price deflation adversely impacted the company’s third-quarter 2016 sales to an extent. Persistence of the aforementioned headwinds remains a threat for the company.

Nonetheless, the aforementioned growth drivers and management’s encouraging outlook usher in some confidence, thus providing respite amid these headwinds.

In addition to LEG, investors may want to consider these same-sector stocks…

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