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Masonite (DOOR) Call Spread Positions for Return to New Highs After Pullback to 200-MA

by | Jul 8, 2021

Masonite (DOOR) strong small-cap that has nearly tripled off the 2020 lows and back at an attractive entry point this week with shares around the 200-EMA and the breakout spot from February 2021. DOOR had a buyer of 1000 October $125/$150 call spreads on 7/8 and still has 1000 September $130 calls in open interest from February buyers. DOOR is a $2.77B manufacturer of interior and exterior doors for new construction and repair/remodel (50% of all sales) of both residential and non-residential construction. The company gets about 75% of revenue from North America and 11% from Europe with acquisitions in the UK helping to expand their footprint. DOOR has expanded their product lineup into facings, wood veneers and fiber or particleboard cores. They have had very consistent result since 2015 with 12% CAGR in margins and 4% CAGR in revenues. DOOR announced a long-term strategic plan recently, their 2025 Centennial Plan, with a focus on hitting $4B in net sales, sector-leading ROIC and 20% adjusted EBITDA margins. The company is working on executing a cost-cutting plan, improving price/cost relationship for products, and improving their mix to boost margins. DOOR is also trying to win more at the point of sale, as they explained in May:

“Our research shows that substitution is very common, and 94% of homeowners will purchase what is convenient and available at the time they are in market. We believe that the work Jennifer and her team are doing in conjunction with our channel partners to focus on down channel marketing and demand creation can change this behavior. With consistent and reliable supply, driving specified demand and winning at the point of sale, we believe we can drive incremental growth by capturing meaningfully higher prices for innovative new products, allowing Masonite to grow in excess of what the market would naturally provide.”

Analysts have an average target for shares of $145 with a Street High $154. Short interest is 2%. Hedge fund ownership rose 3% in Q1, Praesidium with a 8.7% stake and 2.1M shares. Stifel starting coverage in May at Buy as DOOR is likely to see benefits from an early-cycle cyclical upswing in new housing and the company has a meaningful barrier to entry from new players. Baird upgraded to Outperform in March citing recent margin expansion, operational improvement, and capital deployment efforts which have pushed ROIC above 10%, with a path towards mid/high teens over the next several year via price-cost management, volume leverage, and continued free cash flow/stock buybacks.