American Woodmark: Ahead Of Earnings Tuesday, Housing Market Woes Continue To Weigh

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The Building Products industry in the Industrials sector is not for the faint of heart. The high-beta niche is exposed to the quickly shifting real estate and home improvement markets. With dire housing market indicators lately and a weakening consumer situation, many of these stocks have seen sharp losses in 2022.

Building Products Down Sharply This Year

Fidelity Investments

Housing Data Continues To Verify Poorly vs Expectations

Goldman Sachs Investment Research

According to Bank of America Global Research, American Woodmark Corp. (NASDAQ:AMWD) engages in the manufacture and distribution of kitchen cabinets and vanities for the remodeling and new home construction markets. The company offers made-to-order and cash-and-carry products. It also provides turnkey installation services to its direct builder customers through a network of eight service centers.

The Virginia-based $794 million market cap Building Products industry firm in the Industrials sector has negative earnings over the past 12 months and does not pay a dividend, according to The Wall Street Journal.

Back on Aug. 18, Deutsche Bank initiated coverage on American Woodmark with a sell rating and a price target of $45, according to MT Newswires. More broadly, AMWD has an average investment rating of hold and price targets ranging from $45 to $75, according to Capital IQ.

On valuation, negative EPS leads me to refer to the company’s price-to-sales ratio history. Data from YCharts show that American Woodmark trades at just 0.43 times revenue, a historically cheap price over the last two decades. Weakness in the real estate market and tightening consumer financial conditions no doubt pressure the stock’s valuation, but history suggests the stock is often a buy at these levels.

AMWD: Price-to-Sales Ratio History Suggests Value

YCharts

Looking ahead, Wall Street Horizon’s corporate event data show a Q1 2023 earnings date of Tuesday BMO with an earnings call to follow. You can listen live here. After that, the firms’ Q2 reporting date is projected to take place on Tuesday, Nov. 22 BMO. The company just recently held a shareholder meeting and participated at a micro-cap conference – that is about when the stock peaked this month.

Corporate Event Calendar: Earnings On Tap

Wall Street Horizon

Digging into expectations around earnings, the options market has priced in a 7.6% earnings-related stock price swing using the nearest-expiring at-the-money straddle. Analysts expect $1.27 of EPS, according to Options Research & Technology Services (ORATS). On the bullish side of the ledger, there has been a pair of analyst upgrades since the last reporting date, according to ORATS. The stock beat EPS estimates last quarter but missed in the prior six.

Options Angle: AMWD Shares Seen Moving More Than 7% Post-Earnings

ORATS

The Technical Take

So, with a somewhat favorable valuation situation, but a poor earnings beat rate history, what do the charts say?

The stock notched a June low near $41 but was rejected at the key $55 mark earlier this month. There’s a broader downtrend off the early 2021 high that appears firm despite a recent peek above the resistance line. Notice, though, that there is significant volume in the mid-upper $30s from many years ago. Charts remember this activity. To wit, AMWD bottomed in March 2020 at just above $35. I see support at the June low and near $35. Given the downtrend and momentum, I think shares could retest the first or both of those levels.

A breakout above $55 would certainly help confirm that $40 was a longer-term bottom.

AMWD: Probing Resistance, But Rejected On The First Attempt

StockCharts

The Bottom Line

With earnings on tap and negative stock price momentum, I see shares trading lower post-earnings. $40.70 is first support, but a move above $56 would signal a bullish turnaround. With options traders seeing a more than 7% move Tuesday, you might have to be patient to either buy the dip toward $41 or wait for a longer-term breakout.

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