NEW YORK (TheStreet) -- Armstrong World Industries (AWI) shares are up 7.8% to $52.51 on Friday after hedge fund ValueAct Capital announced that it had bought 9.2 million shares in the company representing a 16.8% stake.
Separately, analysts at Deutsche Bank (DB) reiterated the company's "buy" rating while lowering its price target to $59 to $64.
TheStreet Ratings team rates ARMSTRONG WORLD INDUSTRIES as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate ARMSTRONG WORLD INDUSTRIES (AWI) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- AWI's revenue growth has slightly outpaced the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 0.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Despite the current debt-to-equity ratio of 1.51, it is still below the industry average, suggesting that this level of debt is acceptable within the Building Products industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.86 is weak.
- ARMSTRONG WORLD INDUSTRIES's earnings per share declined by 25.5% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, ARMSTRONG WORLD INDUSTRIES reported lower earnings of $1.70 versus $2.41 in the prior year. This year, the market expects an improvement in earnings ($2.63 versus $1.70).
- In its most recent trading session, AWI has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
- You can view the full analysis from the report here: AWI Ratings Report