Patrick (PATK) Buys G.G. Schmitt, Eyes Expansion, Cost Synergy

Patrick Industries, Inc. PATK recently announced that it has acquired Lancaster, PA-based G.G. Schmitt & Sons, Inc. ("G.G. Schmitt"), a designer and manufacturer of customized hardware and structural components. Notably, shares of this Zacks Rank #3 (Hold) company jumped more than 10% on Sep 30, post the announcement of the news.

The company expects the acquisition to be immediately accretive to earnings. Meanwhile, the acquired business will operate as a stand-alone unit in its existing facilities.

G.G. Schmitt is a notable player in the marine industry. It has been serving the industry with high-quality products, engineering expertise and strong industry relationships over the past several decades. Patrick believes that the latest acquisition will support its strategic initiatives and capital allocation strategy.

Notably, G.G. Schmitt's celebrated brand platform, highly engineered processes and products, along with strong relationships with leading marine OEMs have been expanding its reach within the recreational boating market. These tailwinds are expected to strengthen Patrick’s position in the said market as well.

Acquisitions to Drive Growth

Since 2010, Patrick has acquired 64 companies in core markets. Particularly in the first six months of 2018, it had added seven companies to its portfolio. These additions had proved to be accretive to its earnings. The company’s first-half 2019 revenues also increased 6% on the back of these acquisitions. Markedly, it remains focused on strategic acquisitions under existing businesses going forward.

However, the company has been facing headwinds related to increased tariffs and commodity prices. Also, inclement weather and higher operating costs added to the woes. Earnings estimates for the current year have moved 2.9% south over the past 30 days to $4.03 per share. The estimated figure indicates a decline of 13.3% from the year-ago reported figure.

Nonetheless, the earnings are anticipated to grow 17.4% year over year in 2020. Notably, these acquisition synergies are expected to help the company in the long run.

Key Picks

Some better-ranked stocks in the same space are frontdoor, inc. FTDR, Quanex Building Products Corporation NX and Aegion Corporation AEGN. While frontdoor and Quanex sport a Zacks Rank #1 (Strong Buy), Aegion carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

frontdoor’s long-term earnings growth is projected at 15.5%.

Quanex’s earnings for the current year are expected to grow 46.2% year over year.

Aegion’s long-term earnings are anticipated to rise 10%.

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