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.
A secular trend towards impact resistant windows should also benefit sales. The fear of more frequent, more damaging storms is compelling consumers to replace old windows with the improved technology as well as use them in new construction. This trend should help PGT gain share in the market.
Similar companies
Another housing related stock that can benefit from the increase in new construction and remodels is Armstrong World Industries, Inc. (NYSE:AWI). Armstrong World Industries, Inc. (NYSE:AWI) is a producer of flooring and ceiling products. Its market cap is larger at $3.1 billion versus PGT’s $714 million. Armstrong World Industries, Inc. (NYSE:AWI) exposure is much wider, with less focus on the market in any state, as it sells globally. In comparison, PGT focuses heavily on one, deeply cyclical market, making it a riskier play but probably with more upside potential.
Another building materials company, Martin Marietta Materials, Inc. (NYSE:MLM), has also experienced a rally along with PGT. It is up 61% in the last year. Its revenue grew almost 20% from 2011 to 2012, although profit has remained flat due to tight margins for many of its products. Current expectations for future growth of Martin Marietta Materials, Inc. (NYSE:MLM) are quite high for a construction company, since the forward PE is at 25 times as against PGT’s 17.
Conclusion
PGT, Inc. (NASDAQ:PGTI) is an interesting stock at this point based on the secular trend towards impact resistant windows, and even more so, from a housing recovery in the Florida market.
The article Will the Upcoming Changes Help This Stock Continue Its Rally? originally appeared on Fool.com and is written by Mike Thiessen.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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