Key Takeaways:
- The 2-Minute Valuation Model values LEG stock at $14 per share in 2 years.
- That’s a potential 40% upside from today’s price of $10.
- With a dividend yield of around 2%, Leggett & Platt could offer 18% total annual returns over the next 2 years.
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In an environment where many stocks trade at elevated valuations, Leggett & Platt (LEG) stands out as a potential deep-value opportunity.
This diversified manufacturer of engineered components for homes, offices, and vehicles has seen its stock price decline amid housing market weakness and a sizeable dividend cut.
However, the company’s projected earnings recovery and historically low valuation could present an attractive entry point for patient investors.
Let’s examine whether LEG’s current distressed price offers a compelling investment proposition.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio + Expected Dividends = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings per share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Is This Dividend Stock a Good Buy?
Forecast
Leggett & Platt is projected to recover from recent challenges and deliver improved earnings growth over the next three years.
The projected improvement suggests the company is navigating a cyclical trough. Earnings are expected to stabilize and reach double-digit annual growth as housing and automotive markets normalize.
This earnings growth for LEG stock is likely to be driven by:
- Diversified Business Model: LEG operates across multiple segments (Bedding Products, Specialized Products, Furniture/Flooring/Textile Products), providing some insulation from weakness in any single market.
- Cost Reduction Initiatives: Management has implemented restructuring programs to reduce costs and improve operational efficiency, which should help margins recover faster than revenues.
- Cyclical, Not Structural Issues: The company’s challenges appear tied to cyclical housing and automotive market weakness rather than permanent structural issues, suggesting potential for recovery as these markets normalize.
LEG currently offers shareholders a forward dividend yield of 2%. This comes after the company was forced to cut its dividend in 2024 due to its deteriorating financials and a high payout ratio.
View LEG’s full analyst estimates (It’s free) >>>
Is Leggett & Platt Undervalued Right Now?
Leggett & Platt’s current valuation appears relatively cheap relative to its historical average and future prospects.
LEG stock is trading well below its historical average multiple, suggesting significant potential for multiple expansion as the company navigates through current challenges.
We will use a forward P/E multiple of 10x for our valuation, below the stock’s historical 10-year average of nearly 17x.
Fair Value of LEG Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $1.30
- Conservative forward P/E multiple: 10x
- Expected dividends in the next 2 years: $0.40
Expected Normalized EPS ($1.30) * Forward P/E ratio (10x) + Dividends ($0.40) = Expected Share Price ($14)
The 2-year expected LEG stock price we would get from this valuation is $14 per share.
With Leggett & Platt stock currently trading at around $10 per share, this implies a potential upside of approximately 40% over the next two years or an 18% annualized return.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future. But still, it looks like Leggett & Platt is worth a closer look today.
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What is the Target Price for Leggett & Platt Stock?
Analysts have an average price target of around $10 per share for LEG stock, indicating they see about 3% upside for the stock from its current share price:
Risks to Consider
While our valuation suggests that Leggett & Platt has some meaningful upside today, investors should be aware of several risks:
- Housing Market Dependency: A significant portion of LEG’s business is tied to residential furniture and bedding, making it vulnerable to prolonged housing market weakness.
- Automotive Industry Exposure: The company’s specialized products segment serves automotive manufacturers, exposing it to cyclicality in vehicle production.
- Input Cost Volatility: As a manufacturer, LEG faces exposure to raw material price fluctuations, particularly steel, which can impact margins.
- Competitive Pressures: Increasing competition from lower-cost international manufacturers could pressure market share and margins.
- Execution Risk: The company’s projected earnings recovery depends on the successful execution of its cost-cutting and operational improvement initiatives.
Despite these risks, LEG’s current valuation appears to already price in significant pessimism, creating an asymmetric risk-reward opportunity for investors willing to weather near-term volatility.
TIKR Takeaway
Leggett & Platt represents a compelling contrarian opportunity with the potential for significant outperformance if the company’s earnings recovery materializes as projected.
For value-oriented investors who are patiently waiting for a cyclical recovery, it looks like LEG offers an attractive risk-reward proposition at current prices.
Is LEG stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets, growth forecasts, and see if the stock is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
