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Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
Dell Technologies breaks out ahead of earnings release
The Elites Are Waging War on Elon Musk — Here's Why… (Ad)
Dropbox’s stock is a falling knife worth catching
Novavax’s dispute resolution and upcoming earnings call
The Elites Are Waging War on Elon Musk — Here's Why… (Ad)
Stock ideas from the 2024 Microcap Conference
Warner Bros. Discover: Debt down, profits up, yet questions remain
AI Stock Caught Trading Under Secret Name (Ad)
Gloom settles over Germany's economy, with businesses downbeat about the coming months
Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
Dell Technologies breaks out ahead of earnings release
The Elites Are Waging War on Elon Musk — Here's Why… (Ad)
Dropbox’s stock is a falling knife worth catching
Novavax’s dispute resolution and upcoming earnings call
The Elites Are Waging War on Elon Musk — Here's Why… (Ad)
Stock ideas from the 2024 Microcap Conference
Warner Bros. Discover: Debt down, profits up, yet questions remain
AI Stock Caught Trading Under Secret Name (Ad)
Gloom settles over Germany's economy, with businesses downbeat about the coming months
Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024
S&P 500   5,088.80
DOW   39,131.53
QQQ   436.78
Dell Technologies breaks out ahead of earnings release
The Elites Are Waging War on Elon Musk — Here's Why… (Ad)
Dropbox’s stock is a falling knife worth catching
Novavax’s dispute resolution and upcoming earnings call
The Elites Are Waging War on Elon Musk — Here's Why… (Ad)
Stock ideas from the 2024 Microcap Conference
Warner Bros. Discover: Debt down, profits up, yet questions remain
AI Stock Caught Trading Under Secret Name (Ad)
Gloom settles over Germany's economy, with businesses downbeat about the coming months
Sprouts, Block rise; Booking Holdings, Insulet fall, Friday, 2/23/2024

3 construction stocks you need to know about

Construction Stocks

Key Points

  • Acuity Brands reduced its share count by 4% in 2023 and is building leverage for investors.
  • JELD-WEN makes strategic divestiture, shoring up the balance sheet and setting it up to grow in 2024. 
  • Masonite International extends its reach into the high-end market, produces record cash flow in Q3, and buys back shares. 
  • 5 stocks we like better than Acuity Brands

The FOMC is on track to cut rates later this year, and that is good news for the housing market and construction stocks. The only question is the timing, which may be later than expected, but the timing isn’t what matters. What matters for home builders and construction materials makers like Acuity Brands NYSE: AYI, JELD-WEN NYSE: JELD and Masonite International NYSE: DOOR is that the housing market is normalizing, a trough is in place, and growth is expected to return this year. 

The FOMC cutting rates will be a tailwind for the housing market, and there is no doubt about that. Cutting rates will fuel demand for home-improvement HELOCs and refi’s to upgrade old homes and unleash the new home market. As it is, the market is pricing in a cut for late spring, possibly in May or June, but the first may not come until late summer or fall. 

In this scenario, construction materials stocks may remain range-bound until later in the year, but that is also good news. Investors will have time to build positions while these companies generate cash flow, repurchase shares, make strategic acquisitions, and position themselves for accelerating growth in 2025.

Acuity Brands widens margins in 2023

Acuity Brands struggled in 2023 with mixed market conditions, leading revenue to decline YOY. However, the critical information is margin and earnings, which widened and grew. Earnings grew 20% in FQ1/CQ4 due to improving costs and efficiency, with margin strength expected to persist. 


The outlook for F2024, ending August 2024, is solid. Analysts expect revenue to decline by a low single-digit with sequential and YOY growth returning by year-end. Margin will be the highlight of the year, improving sequentially to drive a nearly 40% increase in earnings. Top- and bottom-line growth is forecasted to continue in F2025 with revenue of $4 billion, up about 125 bps on a 1 and 120 on a 2-year basis. 

Acuity Brands pays a dividend, which is a token amount; the company chooses to return value via repurchases. The payout is worth about 0.25%, with shares trading near 15X earnings, and is in place primarily to keep dividend-focused funds and investors in the mix. Regarding repurchases, Acuity Brands' cash flow was ample and allowed for aggressive repurchasing. Share repurchases topped 4% for the year and should continue at a similar pace through the end of F2025. 

Acuity Brands stock chart

JELD-WEN divests, builds cash, widens margin

JELD-WEN Holdings manufactures various home components, including doors, windows, showers, staircases and more. The company is in contraction now, along with many in the business, but growth is expected to return in C2024, compounded by wider margins. Highlights from Q3 2023 include the completed divestiture of its Australia-based business, a narrower-than-expected top-line contraction and significantly wider margins. 

Again, margins are widening on efforts to improve efficiency and repositioning, including an inventory reset. Inventory, i.e., working capital, plays a role in bottom-line performance and balance sheet strength. The takeaway is that earnings, cash flow and FCF are all up on a continuing operations basis, and the margin is expected to widen again in F2024. Balance sheet highlights include a 30% reduction in long-term debt, a 46% increase in cash and a 15% rise in shareholder equity.

Jenn weld stock chart

Masonite International Corporation delivers record cash flow

Masonite International’s door business suffered in F2023 along with the rest of the industry, but like the rest, margins remained solid, and the company delivered ample cash flow. A record, to be precise, driven by cost efficiency, working capital management and mix. 

Among the highlights of the FQ32023 report was the acquisition of Fleetwood, a manufacturer of premium doors, extending the company’s reach into the higher end of the product spectrum. The forecast for Q4 is tepid; revenue and earnings will contract again, but Q4 2023 results are offset by the estimates for 2024. Analysts expect to see a low-single-digit improvement in revenue with a wider margin.

The company’s cash flow improved nearly 4X on a YOY basis, aiding repurchases and the balance sheet. The company's stock count fell 0.7% in the quarter, while cash, assets, and equity were up.  Leverage remains low at 1.1X, leaving sufficient wiggle room for the company to make strategic acquisitions while maintaining its capital returns.

Masonite stock chart

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Should you invest $1,000 in Acuity Brands right now?

Before you consider Acuity Brands, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Acuity Brands wasn't on the list.

While Acuity Brands currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Masonite International (DOOR)
2.4726 of 5 stars
$130.08+0.1%N/A24.68Hold$116.89
JELD-WEN (JELD)
3.6079 of 5 stars
$18.39+1.5%N/A25.19Reduce$18.30
Acuity Brands (AYI)
3.9791 of 5 stars
$244.80+1.0%0.25%20.94Moderate Buy$193.80
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Thomas Hughes

About Thomas Hughes

  • tmhughes.writeon@gmail.com

Contributing Author

Technical and Fundamental Analysis

Experience

Thomas Hughes has been a contributing writer for MarketBeat since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 


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