TRG | The Bottom Line – 12/16

TRG last week marketed in NYC with top management from Armstrong World Industries. Conversations focused on the struggles the company has had during 2022 (chasing inflation, missed and lowered guidance), the outlook for 2023 (possible recession, non-res not as bad as feared, strong cash generation), and the new initiatives that AWI introduced that are incremental to the long-term volume outlook. The overall tone of the day was that AWI remains a “trophy asset” among non-res companies. AWI is a good company, in a disciplined industry, with pricing power, that operates well over time. Short term issues seen in 2022 and macro concerns that have affected the overall market have pushed the stock price and valuation to a level below what the fundamentals and outlook hold over a longer-term view. The stock has traded off ~37% YTD vs. the S&P 500 off ~17%. A strong generator of cash throughout the cycle and with a very low debt level (1.6x debt to EBITDA), we think this is a washed-out name that is oversold.