Thursday's IBD 50 Stock to Watch pick is a leading materials stock in a long cup-with-handle base nearing a buy point. RPM International holds the top spot in its industry group and reached a new high on its relative strength line.
Shares popped 2% after reporting a beat on its fiscal Q1 2023 EPS and sales on Wednesday.
RPM International is a specialty building and consumer coatings and sealants producer.
RPM's brand segments are broken into construction, performance coating, consumer and specialty. Their construction products group markets to distributors, contractors and end‑users, in approximately 130 countries and territories. The products are used for the construction, maintenance and restoration of industrial, commercial and infrastructure projects.
Their leading consumer brands include Rust-Oleum, Roto-Rooter and Kwik Seal.
Materials Stock In a Base Nearing Buying Point
Shares are in a 39-week-old cup-with-handle base nearing a 98.07 buy point on the MarketSmith chart. The relative strength line hit a new high as indicated with the blue dot on the MarketSmith chart. Shares are above the 50-day and 21-day exponential moving averages.
Shares are about 4% below the buy point.
RPM is ranked first in the Chemicals-Paints industry group, which is ranked a low No. 139 out of the 197 IBD groups.
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Earnings Report Beats Expectations With Positive Guidance
RPM International rallied after reporting a beat on fiscal Q1 EPS and sales on Oct. 5. Management gave a positive current-quarter 9%-12% sales growth forecast that encouraged investors.
"All four of our segments achieved double-digit sales growth driven by our procurement and technical teams' ability to increase material supply through insourcing and qualifying new suppliers. Additionally, pricing was managed by implementing increases to catch up with persistent cost inflation," said RPM Chairman and CEO Frank C. Sullivan.
Quarterly EPS are again growing after two declining quarters in 2021 and a flat quarter to start 2022. EPS growth was 11% in the May-ended quarter, increasing to 36% in the August-ended quarter.
Quarterly sales growth ranged from 13% to 17% in the last three quarters. Analysts are projecting annual EPS growth to be 21% in fiscal 2023 and 13% in 2024.
RPM has a noteworthy 93 Composite Rating and a respectable 90 EPS Rating. The materials stock has a solid 90 Relative Strength Rating.
The company has a 25% return on equity, a measure of profitability and efficiency. The CAN SLIM investing strategy seeks a minimum 17% ROE.
The company pays a 1.7% annual dividend yield to shareholders.
Institutions Like What They Heard, But Funds Reduce Shares
JPMorgan Chase upgraded the materials stock to overweight with a price target of 100 following the earnings release. BMO Capital raised its price target to 115, keeping its outperform rating.
Mutual funds own 48% of the shares, with the number of funds declining to 915 in the September quarter from 943 in June. CAN SLIM seeks increased fund ownership, showing institutional conviction in the stock.
