Rapid urbanization, technological advancements, and dynamic consumer preference are expected to drive the home improvement industry’s growth. However, Home Depot (HD) does not look sufficiently fit to capitalize on the industry tailwinds. Therefore, we think it could be better to invest in the stocks of fundamentally sound home improvement companies Lowe’s (LOW), Haverty Furniture (HVT), and Tile Shop (TTSH) instead. Let’s discuss.
Home improvement trends have shifted dramatically over the past year due to the COVID-19 pandemic, which prompted an unprecedented tidal wave of housing projects, with homeowners spending more time at home than they did prior to the public health catastrophe. While expected interest rate increases this year could potentially hurt the housing market and consumer spending, the U.S. home improvement market is expected to grow at a 4.5% CAGR through 2026.
The net sales of Atlanta, Ga.-based Home Depot Inc. (HD) increased 10.7% year-over-year to $35.72 billion in its last reported quarter. However, the stock has declined 19% in price year-to-date. The company cited surging lumber prices as a major headwind hindering its growth. In addition, with the persistent supply chain crisis and rising inflation, analysts expect HD’s EPS to decrease 4.7% year-over-year to $3.68 for the first quarter, ending April 30, 2022, while its revenue is expected to decrease 2.7% year-over-year to $36.49 billion.
Meanwhile, home improvement companies Lowe’s Companies, Inc. (LOW), Haverty Furniture Companies, Inc. (HVT), and Tile Shop Holdings, Inc. (TTSH) have exhibited stable performance. Their stocks possess solid fundamentals and are poised to capitalize on industry tailwinds. Therefore, we think they could be better bets than HD.
Lowe’s Companies, Inc. (LOW)
LOW operates as a home improvement retailer internationally through its subsidiaries and offers several products for construction, maintenance, repair, remodeling, and decorating. The Mooresville, N.C.-based concern also offers home improvement products in various categories, including appliances, paint, hardware, millwork, lawn and garden, lighting, lumber, and building materials.
Last month, Instacart and LOW formed a partnership to offer same-day delivery in as quickly as one hour, which will initially be available in Boston and Charlotte, but will expand in the coming months. Customers can now avail themselves of approximately 20,000 LOW’s items, including small home appliances, building supplies, light fixtures, garden, and outdoor essentials, and more, delivered from the store to their door.
LOW’s net sales increased 5.1% year-over-year to $21.34 billion in its fourth quarter, ended Jan. 28, 2022. Its operating income grew 21.3% from its year-ago value to $1.85 billion, while its net earnings improved 23.3% year-over-year to $1.21 billion over the period. Its EPS increased 34.8% from its prior-year quarter to $1.78.
Analysts expect LOW’s revenue to increase 2.6% year-over-year to $28.29 billion in the second quarter (ending July 2022). The company’s EPS is expected to grow 1.2% year-over-year to $3.25 in the first quarter, ending April 30, 2022. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 34.4% in price over the past year and 25.4% over the past nine months.
LOW’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
LOW is also rated a B for Quality and Sentiment. Within the Home Improvement & Goods Industry, it is ranked #13 of 65 stocks.
To see additional POWR Ratings for Growth, Value, Stability, and Momentum for LOW, click here.
Haverty Furniture Companies, Inc. (HVT)
HVT in Atlanta, Ga., is a specialty retailer of residential furniture and accessories. It offers furniture merchandise under the Havertys brand name, along with custom upholstery products and eclectic looks, and mattress product lines under the Sealy, Tempur-Pedic, and Serta names, as well as the private label Skye name.
During the fourth quarter, ended Dec. 31, 2021, HVT’s net sales increased 10.2% year-over-year to $265.9 million. Its gross profit grew 9% from its year-ago value to $150 million. The company’s net income came in at $24.31 million, while its EPS amounted to $1.35 over this period.
HVT is expected to witness $1.03 billion in revenue growth, representing 1.3% year-over-year growth in fiscal 2022. The $4.78 consensus EPS estimate for its fiscal year 2023 indicates a 4.60% improvement year-over-year. In addition, the company has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 12.7% in price over the past month.
HVT’s strong fundamentals are reflected in its POWR Ratings. The company has an overall B rating, which translates to Buy in our proprietary rating system. HVT is also rated an A for Quality and B for Value. Within the Home Improvement & Goods industry, it is ranked #8.
Click here to see additional POWR Ratings for Growth, Stability, Sentiment, and Momentum for HVT.
Tile Shop Holdings, Inc. (TTSH)
TTSH operates as a specialty retailer of natural stone and synthetic tiles, setting and maintenance materials, and other related accessories. The Plymouth, Minn., company provides natural stone products, such as marble, travertine, granite, quartz, and synthetic products, including ceramic, porcelain, glass, cement, wood look, and metal tiles under the Rush River and Fired Earth brands.
For the fourth quarter, ending Dec. 31, 2021, TTSH’s sales increased 10.6% year-over-year to $90.18 million. Its income from operations increased 9.5% year-over-year to $2.93 million, while its net income increased 31.5% from its year-ago value to $1.81 million. Its EPS increased 33.3% from its prior quarter period to $0.04.
Analysts expect the company’s revenue to grow 1.1% year-over-year to $374.65 million for its fiscal year 2022. The stock has gained 0.3% in price over the past month.
It is no surprise that TTSH has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Quality and a B for Sentiment and Stability. In the Home Improvement & Goods industry, it is ranked #2.
In addition to the POWR Ratings grades I have just highlighted, you can see the TTSH ratings for Growth, Momentum, and Value.
LOW shares fell $1.68 (-0.72%) in premarket trading Friday. Year-to-date, LOW has declined -9.68%, versus a -8.03% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan’s is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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