Companies that cater to home improvement needs are in an advantageous position as people continue to restyle their homes and execute maintenance projects even as the economy reopens, and pandemic distancing mandates are removed. Also, a growing consumer preference for smart and energy-efficient home appliances is expected to further propel the home improvement industry’s growth. So, we think home improvement retailers Home Depot (HD), Lowe’s Company (LOW), and Sherwin-Williams (SHW) are well positioned to generate solid growth this year and beyond. Read on.
The COVID-19-pandemic-induced requirement that people spend more time indoors at their homes, and the motivation to remodel houses to suit work, school, and leisure purposes, continue to drive the home improvement industry’s growth. This trend is expected to continue because consumers who gained confidence in their house remodeling skills may well spend even more on revamping their existing spaces. In fact, a rising preference for luxurious and energy-efficient living spaces is also contributing significantly to the sector’s growth.
The global home improvement market is expected to reach $1207.80 billion by 2027, growing at a 4.5% CAGR from $887.53 billion in 2020. The rapid pace of urbanization, coupled with rising disposable income, is also expected to bolster the industry’s growth.
Because the demand for home improvement goods and services is increasing across all households, home improvement companies The Home Depot Inc. (HD), Lowe’s Company, Inc. (LOW), and The Sherwin-Williams Company (SHW) are expected to thrive this year and beyond. So, we think it could be wise to bet on these stocks now.
The Home Depot, Inc. (HD)
HD is a leading retailer of home improvement products. The company offers a wide range of building supplies, home renovation products, lawn and garden products, and home décor items. In addition, installation, home maintenance, and professional service packages are available to do-it-yourself and professional consumers.
In April, HD opened three new distribution sites in Florida that cover West Palm Beach, Miami, and Fort Myers. The company aims to construct two more distribution centers in Miami in 2022 to expand delivery of appliances to its customers across Florida. Customers in that region will benefit from the facility’s quicker delivery choices, which might help HD expand its business and capture a more significant market share.
HD’s net sales increased 32.7% year-over-year to $37.5 billion in the first quarter ended May 2, 2021. Its operating income grew 76.5% from its year-ago value to $5.78 billion, while its net income came in at $4.14 billion, representing an 84.6% increase from the prior-year period. The company’s EPS increased 85.6% from its year-ago value to $3.86.
A $4.39consensus EPS estimate for the current quarter, ending July 2021, represents a 9.2% improvement year-over-year. Also, HD has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The $143.45 billion consensus revenue estimate for 2022 represents an 8.6% increase from the same period last year. The stock has gained 24.7% over the past year and 15.8% year-to-date.
HD’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 different factors, each with its own weighting.
HD is also rated an A for Momentum, and a B for Sentiment and Quality. Within the A-rated Home Improvement and Goods industry, it is ranked #31 of 65 stocks.
To see additional POWR Ratings for Growth, Value, and Stability for HD, Click here.
Lowe’s Company, Inc. (LOW)
LOW, which was founded in 1921, is a home improvement company that operates more than 1,974 home improvement and hardware stores in the United States and internationally. It offers private branded products and a variety of maintenance, repair, renovation, and decorating items to homeowners, renters and other customers.
In May, the company launched its Total Home approach, which entails offering comprehensive solutions for a variety of home repair and renovation requirements. By increasing investments in pro-related solutions, installation services, localization, and expanding product assortments, LOW is well positioned to drive business growth.
Last month, Lowe’s Canada announced the launch of its new contactless pickup locker service at select RONA and Reno-Depot locations in Quebec for retrieving online purchases. This new, innovative service should enable LOW to offer a seamless omnichannel shopping experience to its customers and improve its business operations.
During the first quarter, ended April 30, 2021, LOW’s net sales increased 24.1% year-over-year to $24.42 billion. Its operating income rose 63% from its year-ago value to $3.24 billion, while its gross margin rose 24.8% from the prior-year quarter to $8.13 billion. The company’s net income increased 73.6% year-over-year to $2.32 billion, while its EPS grew 82.4% from the prior-year quarter to $3.21.
LOW is expected to generate 2.1% revenue growth in the current year. Its EPS is estimated to increase 5.9% year-over-year to $3.97 in the current quarter, ending July 2021. Over the past year, LOW’s stock has gained 38.9%. Furthermore, it has gained 16.4% so far this year.
LOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Momentum and Sentiment, and a B for Quality. In the Home Improvement and Goods industry, it is ranked #15 of 65 stocks.
In total, we rate LOW on eight different levels. Beyond what we’ve stated above, we have also given LOW grades for Value, Growth, and Stability. Get all the LOW’s ratings here.
The Sherwin-Williams Company (SHW)
SHW is a global leader in the manufacturing and distribution of paints, coatings, and associated products to professional, industrial, commercial, and retail clients. The Americas Group, Consumer Brands Group, and Performance Coatings Group are the three segments in which the company operates. It offers a range of architectural paint, stains, varnishes, industrial goods, and wood finishing products, as well as general industrial applications.
In March, two significant eco-innovation projects were launched by Sherwin-Williams Industrial Wood Coatings in China. The first is an Odor Evaluation Center, the first of its kind in the industry. The second is a brand-new Low Odor Series, which includes eight different wood finishes. This project should enable SHW to offer its customers a healthy eco-friendly living experience.
SHW’s net sales increased 12.3% year-over-year to $4.66 billion in the first quarter, ended March 31, 2021. Its net operating cash surged 256% year-over-year to $195.7 million. The company’s net income increased 27.3% from its year-ago value to $409.6 million over this period. SHW’s gross profit rose 11.8% from the prior-year quarter to $2.11 billion. Its EPS increased 31.3% year-over-year to $1.51 .
The company’s EPS is expected to grow 14.9% in 2021 and 11.5% next year. Analysts expect SHW’s revenue to increase 9.9% in its fiscal year 2021. SHW’s stock has gained 40.1% over the past year. Also, over the past three months, the stock has surged 16%.
It is no surprise that SHW 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 and Goods industry, it is ranked #23 of 65 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see SHW ratings for Growth, Momentum, and Value.
HD shares were trading at $311.67 per share on Tuesday morning, up $4.07 (+1.32%). Year-to-date, HD has gained 18.69%, versus a 13.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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