S&P: The Outlook on Mohawk

01/10/2003 12:00 am EST


In an environment where the veracity of Wall Street research is being questioned, Standard & Poor's has remained a hallmark of quality and unbiased, objective research. Indeed, the service is at the forefront of promoting industry reform and providing investors with better access to accurate information. S&P's senior market strategist, Kevin Gooley, looks to carpet maker, Mohawk Industries, as a top pick for 2003.

"Mohawk Industries (MHK NYSE) is one of the largest US carpet and rug makers.  S&P expects that the robust US housing market should continue to drive revenue growth, as flooring sales typically lag the housing market by six to 12 months. The recent acquisition of Dal-Tile International, the largest US ceramic tile manufacturer, should also bolster results. Mohawk's focus on residential sales should accelerate Dal-Tile's growth into that market, and the acquisition offers the possibility of substantial savings through synergies and economies of scale.

"While some raw material costs continue to rise, Mohawk has maintained gross margins by raising its selling prices. The stock should also benefit from the company's planned debt reduction and stock repurchases. Longer-term, we expect the company to seek out new acquisition targets to continue its impressive growth. S&P believes that the shares, currently trading at approximately 12 times estimated 2003 EPS (and also providing substantial cash flow), offer a very attractive investment opportunity."

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