Simpson Manufacturing Co. Inc Is Building A Better Investment
If it seems like we like Simpson Manufacturing Co., Inc (NYSE: SSD) it’s because we do. The company is incredibly well run, is overdelivering on its promises, and poised to...
Simpson Manufacturing Thrives In Tough Market
If it seems like we like Simpson Manufacturing Co., Inc (NYSE: SSD) it's because we do. The company is incredibly well run, is overdelivering on its promises, and poised to make what could be a very large capital return increase with the release of the next quarterly results. Not only has it managed to position itself to meet demand in this challenging time but it has also managed four price increases that have margins on the upswing. In our view, Simpson Manufacturing Co., Inc is a foundational stock for growth or dividend portfolios and it's trading at rock bottom prices.
Simpson Manufacturing Co., Inc Exceeds At All Levels
Simpson Manufacturing Co., Inc had a truly surprising quarter given the nature of its supply chain and the issues plaguing the global supply chain today. The company reported $428.6 million in net revenue for a gain of 42.4% over last year. This is 1200 basis points above the consensus estimate making it one of the best-performing stocks we've covered this quarter relative to the Marketbeat.com consensus estimate. The revenue is driven by strength in the U.S. offset in part by tepid results in the EU and a negative headwind from currency translation. On a segment basis, North American revenue grew 49.8% supported by volume and pricing increases while EU sales fell -1.0% due to foreign exchange. EU sales are slightly higher when adjusted for FX.
As exciting as the revenue strength is, the margin gains are even more so. The company reported a 530 basis point improvement in gross margin and a 980 basis point improvement in the operating margin which helped to drive a triple-digit increase in earnings. The company's GAAP EPS rose 136% versus last year and beat the consensus by $0.66 and this is not where the good news ends. The company does not give guidance for revenue or earnings but the trends are very positive and the guidance for margins is calling for sequential improvement beginning as soon as the 1st quarter of fiscal 2022. The addition of Etanco Group should also help drive top and bottom-line growth.
The Case For Simpson Manufacturing Co., Inc's Big Dividend Increase
The case for Simpson Manufacturing Co, Inc's big dividend increase is easy to make because the company is in such good shape. To start, the current payout is only 15% of quarterly earnings and the balance sheet is a fortress. The balance sheet has very little debt, is net cash, and comes with a 71X coverage ratio that we view as rock-solid. The history shows 8 consecutive increases so there is a high probability for an increase at a 7% or such pace, the cash flow, free cash flow, revenue, and earnings outlook all suggest to us that not only could the dividend be above average but the company will most likely add to/increase its allocation for share repurchases too.
The Technical Outlook: Simpson Is Ready To Rebound
Shares of Simpson Manufacturing Co., Inc entered a correction that shaved more than 20% off the all-time high set late in 2021. Now, the stock is bouncing off a key support level and looks overextended at these levels. The Q4 results have shares moving higher in premarket action, assuming this action continues we see the stock moving up to the $120 level fairly quickly. If price action can get back above the 30-day EMA we see a retest of the all-time highs and the possibly new all-time highs by mid-year.
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