TRG | The Bottom Line – 7/22

Mohawk Industries (MHK) is scheduled to report Q2’22 earnings on Thursday, July 28th. As the world slowly gets back to normal, non-deal road shows are back, and TRG will be on the road with Mohawk in the northeast in early August. MHK stock has underperformed relative to peers, trading off ~29% since the start of 2022 vs. an S&P 500 decline of 17% over the same time period. MHK’s multiple has contracted, falling to a cheap 5.6x EV/EBITDA vs. 8-year average of 10x. Why Mohawk? Why now? Short term headwinds have battered MHK’s stock, but a longer-term view presents an opportunity to own a dominant player at an attractive price and valuation. Overall economic concerns, inflation, and resi slowdown concerns have been the major drivers of the stock decline year to date. The worst of the inflation mismatch is likely behind MHK as multiple price increases in 2022 have chipped away at the deficit and will start to flow through the financials more meaningfully in 2H. What remains unchanged is the secular trend of a continued population push to the southeast/southwest, which will drive construction (resi and non-res) for multiple months and years. Moreover, resi housing overall remains underbuilt. Overall, we believe the bad news has been baked into the stock, offering an attractive entry point at these levels.