Shares of RPM International (NYSE: RPM) hit a 52-week high on Friday. Let's take a look at how it got there and see if clear skies are still in the forecast.
How it got here
The story behind the steady march higher for RPM International is simply that things are slowly getting better. As a manufacturer of specialty chemical products used by the industrial, commercial housing, and consumer sector for various coating and sealing purposes, its growth rate is never going to be off the charts. Then again, the hare didn't beat the turtle, so I'll take slow but steady any day of the week!
RPM's fourth-quarter results released in late July signified robust industrial growth of 15.8% (which is important since that's its largest segment) which was comprised of 10.2% organic growth and 5.6% acquisition-related growth. Its commercial housing segment has benefited from five straight months of increased home prices and a monthly bump higher in homebuilding sentiment. The United States' largest homebuilder, D.R. Horton (NYSE: DHI) confirmed this optimism in its most recent quarter by reporting a 25% increase in new sales orders.
If there's any potential chink in the armor of RPM, it's the company's consumer segment which is incredibly vulnerable to weakness in spending. As of the fourth quarter, the company's Rust-Oleum brand demonstrated strong growth as small at-home-project demand remains high.
Keep in mind, as well, that there are plenty of fish fighting for a piece of the consumer and commercial pond, and in most cases they are much larger than RPM International. Sherwin-Williams (NYSE: SHW), PPG Industries (NYSE: PPG), and Valspar (NYSE: VAL) are all companies RPM is squaring off against.
How it stacks up
Let's see how RPM International stacks up next to its peers.
RPM has been the underperformer of the group, but make no mistake about it, few investors are complaining about the performance of any company in this group.
|
Company |
Price/Book |
Price/Cash Flow |
Forward P/E |
Dividend Yield |
|---|---|---|---|---|
| RPM International | 3.1 | 12.3 | 13.8 | 3.1% |
| Sherwin-Williams | 10.3 | 17.9 | 19.9 | 1.1% |
| PPG Industries | 5.0 | 10.9 | 13.9 | 2.1% |
| Valspar | 4.2 | 14.4 | 15.4 | 1.4% |
Source: Morningstar.
The first thing that stands out is RPM's premier dividend relative to this group of coating companies. RPM's 3.1% yield is unique in that the company has raised its dividend annually for 38 straight years -- a streak that puts the company among the most elite dividend aristocrats. Valspar also gets a special mention for raising its dividend for 30 consecutive years, although it's yield of 1.4% leaves income-seekers wanting more.
I feel it's also worth mentioning the huge premium being placed on Sherwin-Williams despite its reliance on the consumer sector. Although raw material costs can affect each company here, Sherwin-Williams' paint division is also at risk from the rising cost of titanium dioxide pigment, a whitening agent often found in paints.
Overall, PPG, which has a strong international presence, and RPM International which has promoted its focus on the industrial and commercial housing sectors, seem to offer the best balance of growth and value (as well as dividends!).
What's next
Now for the $64,000 question: What's next for RPM International? That question depends on the health of its trio of market segments (industrial, commercial, and consumer), whether its raw material costs rise, and if it can continue to make prudent and accretive acquisitions.
Our very own CAPS community gives the company a four-star rating (out of five), with a whopping 93.4% of members expecting it to outperform. Although I've yet to make a CAPScall on RPM International in either direction, my previous article referring to it as a great dividend stock you can buy right now, should give you my reasoning behind entering a rating of outperform.
I fully admit that I'm a dumb-dumb for not making my CAPScall months ago when I noted what a fantastic dividend performer RPM has been over the past four decades, but I still see plenty of growth potential left in this stock. The simple fact that it's focusing on the industrial segment distancing itself where it can from the ebb-and-flow of consumer spending is a big positive in my book. Even though I'm not sold on a housing rebound just yet, I do feel it's well-positioned to weather another dip if one were to occur. Finally, I feel income investors will note the difference in yields between it and its peers (as well as some of the other metrics listed above which show RPM to be a better value) and opt to purchase RPM for the long-term. Did I mention RPM offers its shareholders a dividend reinvestment plan (up to $5,000/month) at no commission cost? Yeah, it gets two resounding thumbs-up from me!
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