Masco: Sale of Kichler Lighting Business Will Boost Margins; We Maintain Our $82 Fair Value Estimate

On Sept. 3, Masco announced it has entered into a definitive agreement with Kingswood Capital Management to sell its Kichler lighting business for $125 million, a steep markdown from the $550 million Masco paid to acquire Kichler in March 2018. We never believed Kichler was a moatworthy business, and, in our view, it has generally struggled since its acquisition. Indeed, Masco recorded a tradename impairment charge in 2019 and a larger goodwill impairment charge in 2022. That said, Masco’s restructuring efforts likely leave the business in a better position, currently. Even so, we’re glad Masco is moving on from this business. While not a huge needle-mover at approximately 3% of consolidated revenue, we expect Masco’s decorative architectural segment profit margins will noticeably improve after the lower-margin Kichler business is sold. After incorporating the divestiture into our valuation model, we’ve maintained our $82 per share fair value estimate. Management expects the sale to close before the end of 2024.