Here's Why You Should Buy Armstrong World (AWI) Stock Now

Armstrong World Industries, Inc. (NYSE:AWI) continues to benefit from repair, new construction activity, improvement in average unit value (AUV) in the Americas, recent acquisitions and innovation in product pipeline.

Of late, share price of this stock has also been rising. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry he momentum ahead.

Strong Q3, Upbeat Guidance

Armstrong World posted adjusted earnings of 86 cents per share in third-quarter 2017, which increased 14.7% year over year. The company also raised its 2017 adjusted earnings per share guidance range to $2.80-$2.90 from $2.65-$2.75, projected earlier. The mid-point of its guidance depicts 24% growth year over year.

Based on strong October sales that has benefited from pent up demand following the recent hurricanes, a strong order backlog and improved construction market, the company maintained 2017 sales guidance. Year-over-year sales growth is expected in the 6-9% range, translating to total sales of $1.31-$1.34 billion.

Return on Assets (ROA)

Armstrong World currently has a ROA of 7.9% while the industry's ROE is 3.2%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Price Performance

The company outperformed the industry it belongs to in the past year. While the stock has rallied 24.2%, the industry gained 18.0%.

Cheap Valuation

Armstrong World’s trailing 12-month EV/EBITDA ratio is 10.50 while the industry's average trailing 12-month EV/EBITDA is at 23.46. Consequently, the stock is cheaper at this point based on this ratio.

Higher Inventory Turnover Ratio

In the trailing 12 months, the inventory turnover ratio for Armstrong World has been 7.73 compared with the industry’s level of 2.86. A higher inventory turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness.

Value Growth Momentum (VGM) Score

This Zacks Rank #2 (Buy) stock also has a VGM score of B. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 make solid investment choices.

Earnings Estimate Revisions

Investors should also consider the positive trends on the estimates revision front. Analysts have been raising their estimates of Armstrong World lately, resulting in a favorable earnings picture. In the past 30 days, the Zacks Consensus Estimate for 2017 moved up 3% to $2.82 and for 2018 the same has inched up 1% to $3.06.

The Zacks Consensus Estimate for 2017 projects a 23.00% year-over-year growth. For 2018, earnings are expected to grow 8.75% year over year.

The company has an estimated long-term earnings growth rate of 11.87%.

Growth Drivers in Place

Armstrong World’s volume is expected to grow on repair and remodel as well as new construction activity. Its performance in America should benefit from continued improvement in average unit value (AUV) driven by the mix up trend within the industry along with good pricing realization and volume growth. Key markets like Russia, Middle East, and China are also expected to improve. Meanwhile, the company will continue to focus on delivering margin expansion to improve cost structure in these markets.

Currently, the company is striving to grow beyond the traditional core mineral fiber ceiling products. In sync with this, Armstrong World acquired Tectum that will enable it to expand its leading portfolio of durable, sustainable and acoustical solutions.

Stocks to Consider

Some better-ranked stocks in the same industry include Patrick Industries, Inc. (NASDAQ:PATK) , MasTec Inc. (NYSE:MTZ) and United Rentals, Inc. (NYSE:URI) . All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Patrick Industries has a long-term earnings growth rate of 10.56%. The stock has gained 34% in the past year.

MasTec has a long-term earnings growth of 14%. The stock has gained 12% in the past year.

United Rentals has a long-term earnings growth of 15.63%. The stock has surged 55.6% in the past year.

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