We came across a bullish thesis on Leggett & Platt, Incorporated (LEG) on Substack by DeepValue Capital. In this article, we will summarize the bulls’ thesis on LEG. Leggett & Platt, Incorporated (LEG)’s share was trading at $6.87 as of April 17th.
A mid-century modern bedroom dressed with high-end mattresses and pillows.
Leggett & Platt (LEG), a 140-year-old manufacturer of everyday physical products, operates across three core segments: bedding components, furniture/flooring/textiles, and automotive, with vertical integration in steel to manage raw material costs. The company has faced significant challenges since its 2019 acquisition of ECS, a foam mattress supplier, which increased leverage. This led to a collapse in gross margins, from 21.85% in Q2 2021 to 17.4% today, a 450 basis point drop. Demand has also fallen, with bedding down 28% since 2021, furniture/flooring/textiles down 16.7% since 2022, and automotive only down 5% in 2023. Despite these difficulties, LEG continued paying its $220M annual dividend, which worsened its debt position, pushing its net debt to EBITDA ratio to 4.75x.
In response, management is restructuring the business, targeting $60–$70M in permanent cost cuts through facility consolidations, headcount reductions, and operational efficiencies. The company has also eliminated most of its dividend, freeing up $220M annually, and expects $240M in after-tax proceeds from its aerospace divestiture in 2025. Additionally, it plans to generate $60–$80M in real estate sales by 2026. In 2024, LEG has already paid down $126M in debt. CEO Karl Glassman, who owns approximately 0.9% of shares, has incentives linked to EBITDA, free cash flow, ROIC, and total shareholder return, aligning his interests with shareholders.
Leggett & Platt’s U.S.-centric manufacturing and steel integration help mitigate risks from tariffs. Additionally, the millennial generation entering peak housing and home-related spending years could provide a tailwind for its bedding and furniture segments. With management focused on cost control and debt reduction, a conservative estimate using a 9% free cash flow margin and a 12x multiple implies a valuation of approximately $4.19B, nearly 5x the current market cap of $885M. If successful, the turnaround could offer significant upside for long-term investors.
Leggett & Platt, Incorporated (LEG) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held LEG at the end of the fourth quarter which was 21 in the previous quarter. While we acknowledge the risk and potential of LEG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LEG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
