American Woodmark Corporation

AMWD Details

American Woodmark Corporation (NASDAQ: AMWD) develops and distributes kitchen, bath, and home organizing items for renovation and new house building. Its products are sold through a network of independent dealers and distributors and directly to home centres and builders around the country. The company had 17 manufacturing facilities in the US and Mexico, eight primary service centres, and one distribution centres in the United States as of January 31, 2022.

Latest News:

• Supply Chain Efficiency Improvements: On 27 January 2022, AMWD had launched a national supply chain transformation programme using Tecsys Inc.'s (an industry-leading supply chain management firm) warehouse management software, Elite WMS, to improve operational efficiency across its critical warehousing and distribution sites. The company wants to expand the Tecsys environment to optimize logistical resources and create a foundation for further growth, starting the supply chain execution system revamp in April 2021.

Q3FY22 Results:

• Growth in Topline: The company reported a YoY growth of 6.43% in net sales to USD 459.74 million in Q3FY22 (ended January 31, 2022) from USD 431.95 million in Q3FY21, driven by 3.79% growth in home center retailers segment.
• Reported Net Loss: AMWD reported a net loss of USD 49.26 million in Q3FY22 vs. a net income of USD 18.45 million in Q3FY21.
• Cash and Debt Position: The company had USD 0.87 million in cash and cash equivalents as of January 31, 2022, and total debt of USD 508.74 million.

Key Risk:

• Customer Concentration Risk: Customers A and B, the company's two largest customers, represented 31.3% and 18.9% of its gross customer receivables, respectively, as of January 31, 2021. Moreover, its top two customers, A and B, accounted for 32.1% and 16.9% of its net sales as of January 31, 2022. The loss of any one of such critical customers could harm its financials.

Outlook:

• FY22 Guidance: As of Q3FY22, AMWG anticipates YoY growth of mid-single-digit in FY22. It also expects the pricing actions will generate USD 55 million or more in the Q4FY22, helping to offset inflationary expenditures incurred in the 9MFY22.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

AMWD's stock price has fallen 32.22% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 44.01 to USD 108.81. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 71.92.

Considering the significant correction in the stock price, strong balance sheet, shorter cash cycle, positive outlook, associated risks, and current valuation. We recommend a "Speculative Buy" rating on the stock at the closing price of USD 57.89, up 2.73% as of March 03, 2022.

Three-Year Technical Price Chart (March 03, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Analysis Summary:

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.