On Tuesday, Piper Sandler adjusted its stance on Leggett & Platt (NYSE:LEG), a diversified manufacturer of engineered products and components, by reducing the price target to $16 from $18. The firm maintained its Underweight rating on the company's stock. This decision follows a thorough review of the company's financials, including its balance sheet and cash flows.
The revised price target is based on a multiple of 14 times the estimated earnings per share for the year 2024. The adjustment reflects concerns about the company's dividend sustainability. Leggett & Platt, known for its long history of dividend growth, boasting 51 years of consecutive dividend increases, currently offers a 9% dividend yield.
The analyst noted that Leggett & Platt's leverage ratio is nearing the limit set by its debt covenants, which could potentially lead to a loss of its investment-grade credit rating if there were another downgrade. This scenario has raised the likelihood of a dividend reduction as the company might need to redirect funds to strengthen its balance sheet and preserve its credit rating.
A hypothetical 50% dividend cut could provide Leggett & Platt with approximately $120 million in additional liquidity. This move would be a strategic effort to prioritize the company's financial health and maintain its investment-grade status amidst the growing risk to its dividend.
Piper Sandler's updated price target reflects the increased risk associated with the dividend, with the firm lowering its multiple assumption from 15 times to 14 times. This change signifies a more cautious outlook on the stock's valuation due to the potential changes in dividend policy.
InvestingPro Insights
In light of Piper Sandler's recent price target adjustment for Leggett & Platt (NYSE:LEG), it's essential to consider additional insights that could impact investors' perspectives. According to InvestingPro, Leggett & Platt has maintained its dividend payments for an impressive 54 consecutive years, underscoring the company's commitment to returning value to shareholders. This remarkable streak is a testament to Leggett & Platt's financial discipline and long-term strategy, even as concerns about dividend sustainability surface.
InvestingPro data shows a market capitalization of $2.59 billion, indicating the size and stability of the company within its sector. Despite a negative P/E ratio of -19.44, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 14.15, aligning closely with Piper Sandler's earnings multiple. Moreover, the company's dividend yield is notably high at 8.9%, reinforcing its attractiveness to income-focused investors.
An InvestingPro Tip points out that Leggett & Platt's net income is expected to grow this year, providing a potential counterbalance to concerns over its dividend program. While the company's gross profit margins have been weak, the expectation of profitability may offer some reassurance regarding its financial resilience.
For those interested in a deeper analysis, InvestingPro offers additional metrics and insights. Currently, there are 8 more InvestingPro Tips available for Leggett & Platt, which can be accessed at https://www.investing.com/pro/LEG. Investors looking to leverage these insights can take advantage of a special offer using the coupon code PRONEWS24 to receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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