Amid high-interest rates, there is a greater desire among consumers to undertake home improvement projects rather than purchase and move into a new home. Therefore, investors could look to buy fundamentally strong home improvement stocks ADT Inc. (ADT), Armstrong World Industries, Inc. (AWI), and HNI Corporation (HNI).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the home improvement industry.
The pandemic shifted people’s attention toward their homes like never before. During the pandemic, the home improvement industry witnessed strong demand due to remodeling homes, creating work-from-home spaces, and needing in-home entertainment and leisure areas. The U.S. remodeling market was worth $567 billion in 2022.
Inflation has impacted spending on home renovation as consumers have become more price sensitive, with consumer essentials becoming expensive. However, with inflation easing considerably over the past few months, home improvement demand is expected to rebound.
While the Fed recently pushed the benchmark interest rate to a range of between 5% and 5.25%, mortgage rates have fallen to 6.35% for the week ending May 11. Despite the decline from the highs, mortgage rates remain considerably high compared to the historically low mortgage rates during the pandemic.
Home buyers could be more inclined to take up home improvement projects rather than buying a new home.
Moreover, the government has taken the initiative to improve housing quality and lower costs amid the climate crisis. The Biden-Harris Administration announced new actions and investments from the U.S. Department of Housing and Urban Development to lower energy costs and make affordable homes more energy-efficient and climate-resilient.
The global home improvement market is forecast to grow at a CAGR of 6.4%, with revenues reaching $514.90 billion by 2028.
Given these factors, investors could look to buy fundamentally strong home improvement stocks ADT, AWI, and HNI.
Let’s discuss the fundamentals of the featured stocks.
ADT Inc. (ADT)
ADT provides security, automation, and smart home solutions to consumer and business customers. It provides a range of fire detection, fire suppression, video surveillance, and access control systems to residential, commercial, and multi-site customers.
On March 17, 2023, ADT announced a plan to pay down $200 million in debt using cash on hand. ADT’s Executive VP and CFO Ken Porpora said, “This substantial paydown accelerates ADT toward our goal of using our strong cash generation to reduce net debt by $1 billion by year-end 2025 versus year-end 2021.”
In terms of the trailing-12-month gross profit margin, ADT’s 68.37% is 94.5% higher than the 35.15% industry average. Its trailing-12-month EBITDA margin of 38.82% is 256.3% higher than the 10.90% industry average. Likewise, its 14.07% trailing-12-month CAPEX/Sales is 342.4% higher than the industry average of 3.18%.
ADT’s total revenue for the fiscal first quarter ended March 31, 2023, increased 4.3% year-over-year to $1.61 billion. Its adjusted net income came in at $102 million, compared to its adjusted net loss of $7 million in the year-ago period.
The company’s adjusted EBITDA increased 4% year-over-year to $625 million. Additionally, its adjusted net EPS came in at $0.12, compared to an adjusted net loss per share of $0.01 in the prior-year quarter.
Analysts expect ADT’s EPS and revenue for the quarter ending June 30, 2023, to increase 1.5% and 3.4% year-over-year to $0.06 and $1.66 billion, respectively. Over the past year, the stock has fallen 10.2% to close the last trading session at $6.
ADT’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Home Improvement & Goods industry, it is ranked #19 out of 56 stocks. The stock has a B grade for Stability and Quality. Click here to see the additional POWR Ratings of ADT for Growth, Value, Momentum, and Sentiment.
Armstrong World Industries, Inc. (AWI)
AWI designs, manufactures, and sells ceiling and wall systems in the United States, Canada, and Latin America. It operates through Mineral Fiber and Architectural Specialties segments.
In terms of the trailing-12-month EBIT margin, AWI’s 18.17% is 88.5% higher than the 9.64% industry average. Its 16.32% trailing-12-month net income margin is 155% higher than the 6.40% industry average. Likewise, its 37.44% trailing-12-month Return on Common Equity is 174.4% higher than the industry average of 13.64%.
AWI’s net sales for the first quarter ended March 31, 2023, increased 9.8% year-over-year to $310.20 million. Its adjusted net earnings increased 6.2% over the prior-year quarter to $51 million. Its adjusted EBITDA increased 9.5% year-over-year to $96 million. Moreover, its adjusted net EPS came in at $1.12, representing a 9.8% increase over the prior-year quarter.
AWI’s EPS and revenue for the quarter ending June 30, 2023, are expected to increase 3.8% and 4.5% year-over-year to $1.34 and $335.33 million, respectively. The stock has fallen 4.6% year-to-date to close the last trading session at $65.46.
AWI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #18 in the same industry. In addition, it has an A grade for Momentum and a B for Quality. We have also given AWI grades for Growth, Value, Stability, and Sentiment. Get all the AWI ratings here.
HNI Corporation (HNI)
HNI manufactures, sells, and markets workplace furnishings and residential building products primarily in the United States and Canada. The company operates through two segments, Workplace Furnishings, and Residential Building Products.
On March 8, 2023, HNI and Kimball International, Inc. (KBAL) announced that they have entered into a definitive agreement under which HNI will acquire all the outstanding shares of Kimball International.
HNI’s Chairman, President, and Chief Executive Officer, Jeff Lorenger, believes that the combined company will have a stronger platform for growth, delivering significant benefits for its shareholders, members, dealers, and customers.
In terms of the trailing-12-month gross profit margin, HNI’s 36.19% is 21.2% higher than the 29.85% industry average. Its 18.64% trailing-12-month Return on Common Equity is 36.6% higher than the 13.64% industry average. Likewise, its 1.56x trailing-12-month asset turnover ratio is 94.8% higher than the industry average of 0.80x.
HNI’s net sales for the first quarter ended April 1, 2023, came in at $479.10 million. The company’s gross profit margin came in at 36.4%, compared to 34.4% in the year-ago period.
Additionally, its net income attributable to HNI and net EPS attributable to HNI came in at $1.60 million and $0.04, respectively. Its net cash flow from operating activities came in at $17.30 million, compared to net cash flow to operating activities of $39 million in the year-ago quarter.
HNI’s EPS and revenue for the quarter ending December 31, 2023, are expected to increase 20.6% and 8.7% year-over-year to $0.76 and $618.17 million, respectively. The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has gained 5.2% to close the last trading session at $27.71.
HNI’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #17 in the Home Improvement & Goods industry. It has an A grade for Sentiment and a B for Value and Quality. Click here to see the other ratings of HNI for Growth, Momentum, and Stability.
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ADT shares were trading at $6.01 per share on Monday afternoon, up $0.01 (+0.17%). Year-to-date, ADT has declined -33.41%, versus a 8.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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