|Shares Out. (in M):||0||P/E|
|Market Cap (in $M):||380||P/FCF|
|Net Debt (in $M):||0||EBIT||0||0|
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PGT manufacturers and distributes both impact-resistant and traditional windows with sales concentrated in
There are three main products: WinGuard (impact-resistant branded product), non-WinGuard (mainly aluminum non-impact resistant product) and Multi-story (impact resistant windows for taller apartment buildings). The sales mix in 2Q was 66% WinGuard, 28% non-impact and 6% multi-story. We expect WinGuard and Multi-story to increase to 77% and 8%, respectively by 4Q07.
WinGuard sales were up 77% y/y in 2Q06 and 71% in ’05 (verses -28% and +2%, respectively for new home sales in
Impact Resistant Market Consistently Outgrows Housing Starts:
Active impact-resistance (shutters) still represents 80% of the impact-resistant market nationally with impact-resistant windows (passive) representing the other 20%. In
WinGuard sales increased to 66% of total sales in 2Q06 from 56% in 2005. This is important because 1) WinGuard is much higher growth and 2) WinGuard windows have a gross margin of 45-50% versus mid-20s for the regular aluminum windows. We project the non-WinGuard sales to decline 20% next year.
An unrecognized part of the story is multi-story windows, which had sales improve to $11.6M in 1H06 from $2.6M in 1H05. These windows have a low 40s gross margin. PGT estimates the market for these windows is $350M annually and they believe PGT will only do about $25M this year. Currently, they can only manufacture windows for buildings up to 10 stories, but are introducing a product line in 4Q that can be used for buildings taller than that. It appears analysts are ignoring the benefit of multi-story as they don’t even break out the revenue line in their models (lumped in w/ non-WinGuard windows, which are expected to decline).
One last application of the windows is for security and noise prevention. PGT currently markets these windows to homes that are near airports because they are much more effective at muffling noise than regular windows. In addition, these windows can be used for security reasons. In one case, a customer of PGT wrote a letter to the company saying how burglars had tried to throw cinder blocks through the sliding glass PGT door and finally gave up and ran off because they could not penetrate the glass.
The bear case is that 88% of sales come from
June was PGTI’s first quarter as public company. Not only did it blow away the estimates on all lines, it beat the estimates for Q4 2007.
We believe this quarter should also be better than estimates given our channel checks and conversations with several sell side analysts. We are hearing that sales are better from both the traditional and WinGuard channels. The company is also saying that penetration into LA and
The price of aluminum is also falling – 60% of COGS is materials, with aluminum making up the majority of the cost. When the company did the IPO, the price of Aluminum per ton was $2,600 (and estimates have $2,450 embedded) and the company was hedged at approximately $1,900. Today, aluminum is $2,300 which adds 50bps to margins and $0.06 to our 2007 EPS.
We’re also hearing that a large national homebuilder is close to securing a sizable contract directly with PGTI (despite national homebuilders representing 15% of total revenue, nearly all sales are now done through suppliers).
Valuation @ 10/6/06 $12.91 close:
7.8x our ’07 EPS estimate = $1.66
8.5x ’07 consensus EPS = $1.52
8.8x our ’06 EPS estimate = $1.46
10.3 ’06 consensus EPS = $1.25 ($0.24 in 1Q & $0.47 in 2Q implies $0.54 2H06)
EV = 5.4x our ’06 EBITDA estimate = $97M
EV = 4.5x our ’07 EBITDA estimate = $116M
Our Price Target is $25 or 15x our 2007 estimate of $1.66, which we believe is conservative. There is no reason why PGTI should not trade at the high end of peers.
PGTI @ Peer Median
PGTI @ BECN Multiple
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