Masco Corporation (MAS) and Carrier Global Corporation (CARR) are two prominent players in the building products and equipment industry. MAS designs and manufactures home improvement and building products through its Plumbing Products and Decorative Architectural Products segments. It sells its products to the plumbing, heating, and hardware wholesalers, home centers and online retailers, hardware stores, electrical and landscape distributors, lighting showrooms, building supply outlets, and other mass merchandisers. CARR provides heating, ventilating, air conditioning (HVAC), refrigeration, fire and security, and building automation technologies. It serves residential and commercial customers.
High input prices and limited inventory have been causing home prices to rise lately. Though rising mortgage rates have been a concern, strong consumer demand and increasing investments in infrastructure projects should benefit companies engaged in the building products and equipment industry. So, both CARR and MAS should benefit.
MAS is a clear winner with 3.1% gains over the past week versus CARR’s 0.9% returns. But which of these stocks is a better pick now? Let’s find out.
Recent Financial Results
MAS’ net sales for its fiscal year 2021 fourth quarter ended December 31, 2021, increased 8.7% year-over-year to $2.02 billion. However, the company’s gross profit came in at $619 million, indicating a 6.2% year-over-year decline. Its operating profit came in at $218 million for the quarter, representing a 29% decline from the year-ago period. MAS’ net income increased 33.6% year-over-year to $140 million. Its EPS came in at $0.55, down 25.7% from the prior-year period. As of December 31, 2021, the company had $926 million in cash and cash equivalents.
For its fiscal 2021 fourth quarter ended December 31, 2021, CARR’s net sales increased 11.7% year-over-year to $5.13 billion. The company’s adjusted operating profit came in at $517 million, up 14.1% from the prior-year period. While its adjusted net income increased 38.9% year-over-year to $389 million, its adjusted EPS grew 41.9% to $0.44. As of December 31, 2021, the company had $2.99 billion in cash and cash equivalents.
Past and Expected Financial Performance
Over the past three years, MAS’ revenue and total assets have increased at CAGRs of 8% and 1.1%, respectively. MAS’ EPS is expected to increase 13.2% year-over-year in fiscal 2022, ending December 31, 2022, and 10.5% in fiscal 2023. Its revenue is expected to grow 5.2% in fiscal 2022 and 3.9% in fiscal 2023. Analysts expect the company’s EPS to grow at a 10.8% rate per annum over the next five years.
CARR’s revenue and total assets have increased at CAGRs of 2.9% and 6.4%, respectively, over the past three years. Analysts expect CARR’s EPS to grow 0.4% year-over-year in fiscal 2022, ending December 31, 2022, and 14.1% in fiscal 2023. Its revenue is expected to decline 3.2% year-over-year in fiscal 2022 and rise 5.4% in fiscal 2023. Analysts expect the company’s EPS to grow at a 12% rate per annum over the next five years.
Valuation
In terms of non-GAAP forward PEG, CARR is currently trading at 1.46x, 65.9% higher than MAS’ 0.88x. In terms of forward EV/Sales, MAS’ 1.65x compares with CARR’s 2.17x.
Profitability
CARR’s trailing-12-month revenue is almost 2.5 times MAS’. Also, CARR is more profitable, with a 14.1% EBITDA margin versus MAS’ 14%.
Furthermore, CARR’s net income margin of 8.1% compares with MAS’ 4.9%.
POWR Ratings
While CARR has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, MAS has an overall C grade, equating to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.
Both CARR and MAS have a C grade for Value, reflecting their slightly higher-than-industry valuation ratios. CARR’s 1.78x forward Price/Sales is 35.1% higher than the 1.32x industry average. MAS has a 1.37x forward Price/Sales, 4% higher than the 1.32x industry average.
Of the 64 stocks in the C-rated Home Improvement & Goods industry, MAS is ranked #26.
CARR is ranked #19 of 51 stocks in the B-rated Industrial - Building Materials industry.
Beyond what we have stated above, our POWR Ratings system has also graded CARR and MAS for Sentiment, Quality, Stability, Momentum, and Growth. Get all CARR ratings here. Also, click here to see the additional POWR Ratings for MAS.
The Winner
Growing demand from entry-level homebuyers and rising infrastructure projects should help CARR and MAS grow substantially. However, higher profitability makes CARR a better buy here.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Ratings of Buy or Strong Buy. Click here to access the top-rated stocks in the Industrial - Building Materials industry and here for those in the Home Improvement & Goods industry.
MAS shares were trading at $52.21 per share on Monday afternoon, up $1.28 (+2.51%). Year-to-date, MAS has declined -25.27%, versus a -9.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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