Carlisle: Fundamentals and Valuation
19% TSR CAGR over the last five years with further upside
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Carlise has shown strong shareholder returns over the last five and ten years, but especially in 2022 the company started to decouple from the S&P 500 and outperform meaningfully. In recent weeks, shares have corrected and entered a bear market with a 22% correction. Let’s take a look at Carlisle, one of my biggest winners, after buying in the 2023 lows by looking at the drivers for this growth and the company’s reinvestment engine.
Here’s the first part of the deep dive.
Growth
A company can leverage three different levers to deliver shareholder returns:
revenue growth
margin improvements
shrinking the share count
(valuation multiple can be influenced a bit, but ultimately depends on the market)
Below, we can see that Carlisle has seen strong growth over the last decade but with high volatility.
Carlisle has divested billions of annual revenue over the last 18 years in order to streamline its business and focus on its best assets. Most recently, the company divested its Interconnect and Fluid business, which generated $1.1 billion in 2022. In the first part, I already talked about the Carlisle Operating System and Carlisle Value Creation Model and how they drive growth and innovation, so make sure to read them.
After its completed acquisition of Plasti-Fab, CSL now announced another bolt-on with Texas-based manufacturer of Expanded Polystyrene Insulation Products ThermaFoam to build on the foundation. ThermaFoam looks to be a small company with a couple of million in sales, significantly smaller than the $259.5 million they paid for Plasti-Fab.
The core building products business has been very steady throughout the last cycles despite being a cyclical business. That’s in part due to the high share of repair and remodel revenue (61%) compared to new construction (39%). However, it still declined 19% in 2023 due to channel destocking, project delays and weather. The supply chain disruptions following COVID led to elevated earnings in 2022 for Carlisle and the extra inventory distributors and customers built now need to be destocked. The weather, of course, also impacts the business because roofing work relies on decent weather conditions. Q1 seasonally is a weaker quarter for this reason.
Roofing has roughly a 20-30 year replacement cycle, and the high number of new builds that were built between 1997 and 2008 are coming into the replacement range, providing growth opportunities through 2030.
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