End to 211% Caesarstone Rally Is No Deterrent: Israel Overnight

Jun 15, 2014 10:02 am ET

June 15 (Bloomberg) -- Caesarstone Sdot Yam Ltd., the maker of quartz countertops, is heading for its first-ever quarterly stock loss amid concern the company’s push to ramp up output is coming just as the U.S. housing recovery weakens.

Yet Chief Executive Officer Yos Shiran is unfazed.

The way he sees it, the success or failure of the Israeli company’s expansion won’t be determined by the strength of the American housing market. That’s because Caesarstone, which gets about 35 percent of its revenue in the U.S., is counting on taking a bigger slice of the countertop market by getting more shoppers to choose quartz over competing materials, such as granite and marble.

“Caesarstone’s growth engine is based on a material- conversion story, so this is a growth that happens regardless of what’s happening in the market,” Shiran said in a phone interview on June 13, two days after checking on the construction site of the company’s first U.S. plant in Richmond Hill, Georgia. “Of course, if there’s a strong rebound, it helps, but we are not depending on it and our plans are not based upon it.”

The weakness in the housing market, which Federal Reserve Chair Janet Yellen called disappointing on May 7, is worrying investors after they bid the stock up 211 percent in New York last year in what was the biggest gain on the Bloomberg Israel- US Index. Caesarstone, based in Sdot Yam, Israel, fell 1.5 percent last week to $46.53 in New York, extending its decline this quarter to 14 percent. The stock is down 6.3 percent this year, compared with a 1.8 percent advance in the Israel-U.S. stock index.

Vulnerable Stock

“The stock is vulnerable to perceptions in the U.S. housing market,” Bruce Schoenfeld, research director at New York-based BlueStar Global Investors LLC, said by phone June 13. “The data about housing in the U.S. has been pretty fairly muted.”

Yellen flagged the industry as a risk to the economic outlook in testimony to Congress in May, while Treasury Undersecretary for Domestic Finance Mary Miller said last week the recovery has been uneven.

While sales of previously owned homes rose for the first time this year in April, they were still some 7 percent lower than a year earlier, according to data from the National Association of Realtors. New single-family house sales were 4.2 percent below the year-earlier level, Commerce Department data showed.

Georgia Plant

The Standard and Poor’s Supercomposite Homebuilding Index, which includes companies such as Lennar Corp. and PulteGroup Inc., has declined 2 percent this year, compared with a 4.8 percent gain in the broader S&P 500 Index.

Shiran was in Richmond Hill, a town south of Savannah in Georgia, to visit the site of Caesarstone’s new plant, which will be its first in the U.S. The company is investing about $100 million in the facility, which will have two production lines. The first should be up and running by the first half of 2015, and the second should be operating by the end of next year, he said.

The company is also adding a production line in Israel, which will operate at full capacity by the end of the third quarter, he said.

Caesarstone, which was started on a kibbutz in Israel, raised its 2014 revenue forecast to as much as $430 million from a prior range of $410 million to $420 million, the company said May 8. The stock has fallen 12 percent since the close of trading the day before the announcement. Israel’s benchmark TA-25 index declined 0.3 percent to 1,392.57 at the close in Tel Aviv today.

Analyst Ratings

Four out of five analysts recommend buying Caesarstone shares, according to data compiled by Bloomberg, and the stock should reach $60 in the next 12 months based on the average of three estimates. It has quadrupled in value since the company’s U.S. initial public offering in March 2012.

Shiran wants to boost production by 70 percent by the end of 2015 through the addition of facilities in the U.S. and Israel. His goal is to penetrate more of the American market, where less than 10 percent of consumers use quartz countertops, compared to 85 percent in Israel, he said.

“We need to expand our capacity,” he said. “We see the U.S. as a big opportunity for us, and we continue with our expansion plans.”

--With assistance from Shoshanna Solomon in Tel Aviv.