Roll Out the Red Carpet for TILE

Interface is the world leader by market share in its main business of carpet tiling for industrial and commercial usage. It supplies about 35% of the global market in this growing business. The company was booming pre-Covid, before the world largely shut down to deal with the pandemic. All-time record earnings per share in 2017, 2018 and 2019 peaked at $1.18, $1.49 and $1.58 respectively. Profits were hurt by Covid, dipping to just $1.14 per share in 2020. 2021, though, surprised most analysts as second half EPS accelerated once again. TILE closed out last year with a flourish: Q4 adjusted EPS were 47 cents vs. Value Line's 29 cent estimate. Full-year earnings were $1.23 vs. $1.14 rather than the $1.05 negative comparison expected just three months earlier. The fourth-quarter numbers were posted Tuesday. Management is now shooting for close to their old record, at about $1.50 per share in 2022. Better still, even after a decent jump on the March 1, 2022 report the shares are reflected only a small portion of the imbedded value already created over the past decade. Situations like that make my mouth water. I was a major buyer of TILE in the fall of 2020 when it fetched in the $6 to $7 range. Since then, it changed hands at high at $18.03 during June of 2021. TILE was north of $17 as recently as Nov. 15, 2021. Here is my updated view on TILE based on the new information conveyed to us this week. What is TILE really worth? The stock's long-term average price-to-earnings -- excluding 2020 -- ran about 19.5-times. I'm conservatively assuming just 17.5-times forward earnings to reach my year-end 2022 target price of $26.25. Hitting that very achievable goal would deliver over 90% upside from the current quote. That conclusion is not far fetched. Interface peaked above $22 during 2013-2014 and 2015 on EPS running from $0.67 to $1.10. It topped out at $25.70 during 2017 on EPS of $1.18. It hit $26.30 in 2018 on EPS quite similar to what is now forecast for this year. Before the pandemic management had been happily sharing profits via quarterly dividends. The annual rate rose from 9 cents in 2012 to 26 cents in 2019. It was prudently cut to just a penny a quarter during the worst of the Covid-shutdown crunch. There is every indication we'll start to see much higher quarterly payments again before long. The longer-term view appears even better. Here is what Value Line saw for TILE prior to Tuesday's great news. The projected annual gains look even better now from a lower starting price than when they published this in December 2021. I'm not alone in sensing great gains ahead. Yahoo Finance was calling for TILE to reach $19.33 by this time next year, ahead of its much better than expected news. Research house FastGraphs also liked the shares before seeing today's report. It looked for a Dec. 31, 2022 prices of $21.77 if TILE rebounded to what they called its normalized multiple. It saw $19.35 by year-end even if the shares only fetched 15-times the old estimates. Now, after updating expected EPS those goals become $22.50 or $25.30 based on the two different P/E assumptions. No matter how you slice, it interface appears quite undervalued. Options are available extending out as far as Oct. 21, 2022 for those who want to buy calls or sell puts. Buy some TILE shares, and consider shorting some Oct. 2022 $12.50 or $15 puts as well.

Roll Out the Red Carpet for TILE

Interface saw a breakout quarter and now shares appear ready to pop.

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