Leggett & Platt, Incorporated (LEG) Gabelli Research Analyst Justin Bergner (2-20-2018)
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Transcript:
On February 7th, we changed our recommendation on Leggett & Platt from hold to buy.
Leggett, headquartered in Carthage, MO, designs and produces various engineered components and products worldwide to consumer durables markets, mainly furniture therein, automotive markets, and commercial/industrial markets. Its products include mattress innersprings and lumber support systems for automotive seating.
The company has 136 million shares outstanding, closed at 44 dollars per share for an equity market cap of 6.0 billion dollars.
While Leggett & Platt supplies cyclical bedding, furniture, and automotive markets, it has a dominant market position in mattress innersprings, which comprise half of the $2.4 billion US market for mattress cores and stationary foundations. It also has nearly 50% global market share in $1 billion market for automotive lumbar support and seat suspension. In both the innerspring and seat comfort market, its products play a critical role in driving consumer comfort.
Leggett & Platt has recently been showing robust outgrowth in mattress cores after a challenging 1H’17. Its Comfort Core, Quantum Edge, and Nano-coil products have gaining content on hybrid mattress cores, which use both foam and spring components. Growing raw material costs for foam cores has also helped Leggett’s innerspring components. While bed in a box is a competitive risk, Leggett is itself a growing player in this market.
Leggett has reasonable valuation metrics for a high quality multi-industrial with good operations and good capital allocation. It trades at 10x our estimate for 2018 EBITDA with a 5.5% FCF yield that it uses to pay a 3.3% dividend yield, repurchase stock, and make bolt on acquisitions.
Leggett should grow EBITDA at a 7% rate from 2017-2021 and EPS at a near 10% . We estimate EPS of $2.75 in 2018 growing to $3.30 in 2020 and calculate a 2020 Private Market Value of $60 per share.
