PGT, Inc. (PGTI): Will the Upcoming Changes Help This Stock Continue Its Rally?

PGT, Inc. (NASDAQ:PGTI) announced multiple transactions recently following a solid earnings report and an improved outlook. The transactions include its largest holder selling shares in a secondary offering and the company engaging in a large repurchase from a single holder. Increasing new housing starts in Florida are the key drivers behind the stock and also behind getting these deals done.

PGT, Inc. (NASDAQ:PGTI) is the leading manufacturer of residential impact-resistant windows and doors. Its products are used not only in residential, but also commercial, high rise, and institutional construction markets. The product line includes various aluminum and vinyl windows and doors.

PGT secondary offering, share repurchase & debt restructuring

PGT, Inc. (NASDAQ:PGTI) announced a secondary offering of 10 million shares. The shares will be sold by JLL Partners, which owns 61.5% of PGT’s common stock. The underwriters have the option of purchasing an additional 1.5 million shares from JLL Partners. None of the stock is being offered by PGT, and JLL will receive all the proceeds from the offering.

Separately, PGT, Inc. (NASDAQ:PGTI) also plans to repurchase $50 million in stock in a private transaction concurrent with the secondary offering. It will pay the same price per share as in the secondary offering less underwriting discounts and commissions. PGT will finance the transaction by refinancing its current debt and increasing the current amount of debt on the balance sheet by $50 million. The transactions are contingent upon each other, requiring consummation of all three parts — the repurchase, the secondary offering, and the debt refinancing.

The balance sheet and free cash flow should allow for further debt reduction and share buybacks. Prior to the announcement, PGT, Inc. (NASDAQ:PGTI) paid off $7.5 million in debt during 1Q13 and it also has about $10 million under its more standard share repurchase program.

Fundamentals improving for PGT

The transactions come on the tail of a solid quarter in 1Q13 driven by a recovery in the housing market, particularly in Florida where the company is based. The Florida housing market accounts for around 85% of sales. Sales in new construction were up 43% year over year and 26% in repair and remodel. Management believes that new starts will grow by a 30% CAGR over the next three years to 100,000 annually. New housing starts accounted for about 28% of sales in 2012.

The company is a way to play the recovery in housing in one of the worst hit markets, Florida. Housing starts in Florida were under 32,000 in 2011. A rebound in this market to the more normalized pre-recession levels of 100,000 could drive significant earnings power for PGT, Inc. (NASDAQ:PGTI). It could lead to over $1 per share in EPS; FY13E earnings consensus is currently $0.35 per share.