Martin Whitman (Trades, Portfolio) is founder and portfolio manager of the Third Avenue Value Fund. Whitman is a 1949 graduate of Syracuse University, which recently renamed its School of Management after Whitman, after a large gift from him in June 2003. He is an adjunct faculty member at Yale School of Management.
During 2015 Q2 the investor bought a big stake of Masco Corp (MAS) with an impact of 2.13% on his portfolio. He bought 1,479,930 shares that is the 0.43% of outstanding shares of the company. Since that buy, the price of the stock didn’t face any change.
About the company
The company manufactures, distributes and installs home improvement and building products, with emphasis on brand name consumer products and services holding positions in their markets. It generally provides product offerings in a variety of styles and price points and distribute products through multiple channels.
The company recently was among companies that offer high returns; it was able to keep return on investment at 17.87% in the trailing 12 months while the industry’s average stands at 5.02% and sector’s optimum level is 13.01%.
The company had a strong first quarter because its strong management and their smart strategies are driving strong results and was all focusing on repairing its business model and on enhancing operational efficiencies.
They had 14 consecutive quarters of year-over-year sales and profit growth and even the last quarter confirmed this trend. North American sales rose by 5%, international sales rose by 10% as a result of improved end-market activity, with the strongest growth coming from residential new home construction and commercial channels, and the European businesses had 10% sales growth in local currency despite a strong mid-single digit comp from the first quarter of last year.
Operating margin had an increase of 9% and Adjusted EPS grew 43%.
In the end the company performed very well in the first quarter despite short-term challenges and currency headwinds and is more likely to sustain its growth momentum on disciplined capital allocation strategy.
Recent events
Earlier last June they announced that its Board of Directors has approved the previously-announced spinoff of TopBuild Corp (BLD), as part of their strategic initiatives to enhance shareholders' value. They are confident that TopBuild is well positioned to operate as an independent public company. Following the spin-off, both TopBuild and Masco will have greater flexibility to focus on and pursue their respective growth strategies. For Masco, this is the ongoing commitment to create shareholders value by profitably growing in branded building products. More than this, with the spinoff the company offers a unique opportunity to own an asset with improving fundamentals.
About the stock
MAS stock is currently trading 6.84% below its 52-week high and 2.27% above its 52-week low. During the last year the price rose by 19% (in the range of $19.84 – $28.38). The stock has a price-to-earnings ratio of 11.14 versus Industrial Goods sector average of 18.71. The stock has a 200-day moving average of $25.30.
The company looks undervalued according to both, the DCF model and the Peter Lynch earnings line, that give a fair value of $35. The margin of safety is now 23%.
Daniel Loeb (Trades, Portfolio) is now the main holder of the company with 10,000,000 shares that is the 2.88% of outstanding shares of the company. Is followed by Brian Rogers (Trades, Portfolio) with 2.08% and Richard Pzena (Trades, Portfolio) that during the first quarter of the year reduced his stake by 42% and now is holder of 1.69% of outstanding shares.
