The surge in interest rates and heightened inflationary pressures dampened consumer spending in the home improvement sector. However, with the easing of inflation and indications of a potential pause in rate hikes, there is optimism for a resurgence in home improvement demand.
Although inflation remains at stubbornly high levels despite easing, consumer spending surged 0.8% in April, as reported by the Commerce Department. While stronger than expected economic data reinforces the need for further rate hikes, the uncertainty in the regional banking sector kept investors hopeful of a pause instead.
Ben Johnston, chief operating officer at Kapitus, expects continued demand for home renovations as housing purchases decline. He foresees the overall cost of home renovations to stabilize during 2023 due to a slowing economy and moderating inflation.
Homeowners are investing in upgrades for improved functionality, energy efficiency, and aesthetics amid high-interest rates and rising per capita disposable income.
The global home improvement services market is expected to reach $423.90 billion in 2027, growing at a CAGR of 5%, driven by technological advancements, such as visualization apps and 3D software, which enhance the home remodeling experience. Furthermore, the global remodeling market is expected to experience substantial growth, with projections indicating a value of $5.46 billion by 2029.
As consumers continue to invest in enhancing their living spaces, the industry is set to thrive, offering a wide range of possibilities for businesses, investors, and homeowners alike. That being said, let us look at the fundamentals of the stocks mentioned above in detail.
Frontdoor, Inc. (FTDR)
FTDR provides customizable home service plans that help customers protect and maintain their homes and assets from expensive and unplanned home systems and appliance breakdowns. The company operates under American Home Shield, HSA, OneGuard, and Landmark Home Warranty brand names.
On May 10, FTDR revealed that its app, Frontdoor, which offers comprehensive home maintenance and repair services, had garnered over 225,000 downloads within a mere four weeks since its launch on April 11. This reflects the company’s robust demand from homeowners.
On April 26, FTDR announced a significant partnership termed “Feature Plus Level Partnership” with Home & Garden Television (HGTV) for the highly anticipated Smart Home Sweepstakes 2023. As part of this collaboration, promotional content showcasing the newly- introduced Frontdoor app would be extensively featured across HGTV’s digital platforms.
FTDR’s revenue increased 4.6% year-over-year to $367 million in the first quarter (ended March 31, 2023), while its gross profit rose 18.1% from the year-ago value to $170 million. The company’s adjusted net income and adjusted EPS amounted to $23 million and $0.29, up 666.7% and 625% from the prior-year period, respectively. Also, its adjusted EBITDA increased 116% from the year-ago value to $54 million.
Streets expect FTDR’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 5.3% and 4.8% year-over-year to $512.73 million and $0.56, respectively. Moreover, it surpassed the revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 50.4% year-to-date to close the last trading session at $31.28.
FTDR’s POWR Ratings reflect this robust outlook. The stock 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.
It has an A grade for Quality and a B for Growth. In the 56-stock B-rated Home Improvement & Goods industry, it is ranked #14. To see additional POWR Ratings of FTDR for Value, Momentum, Stability, and Sentiment, click here.
Steelcase Inc. (SCS)
SCS provides a comprehensive portfolio of furniture and architectural products designed to help customers create workplaces. Its furniture portfolio includes furniture systems, seating, storage, fixed and height-adjustable desks, benches, etc. In addition, its interior architectural products comprise full and partial-height walls and architectural pods.
On April 14, the company paid a quarterly dividend of $0.10 per share to its shareholders. SCS’ annual dividend of $0.40 translates to a 5.63% yield on the prevailing prices, while its four-year average dividend yield is 4.29%.
In the month of February, SCS was named in FORTUNE 2023 World’s Most Admired Companies list for the 17th year and listed as fourth in the Home Equipment and Furnishings category. This recognition depicts the company’s consistently strong performance within the industry.
For the fourth quarter of fiscal year 2023, which ended February 24, 2023, SCS’s revenue increased 6.5% year-over-year to $801.70 million, while its gross profit rose 21.8% from the year-ago value to $239.20 million.
The company’s net income amounted to $15.70 million versus a net loss of $2.20 million in the same period last year, while its adjusted EPS increased significantly year-over-year to $0.19. Also, its adjusted operating income improved by 532.8% from the year-ago value to $38.60 million.
The consensus EPS estimate of $0.67 for the fiscal year 2024 (ending February 28, 2024) represents a 19.6% improvement year-over-year. The consensus revenue estimate of $3.24 billion for the current year represents a marginal increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained marginally year-to-date to close the last trading session at $7.11.
It’s no surprise that SCS has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Growth and Value. Out of 56 stocks in the same industry, it is ranked #16.
In addition to the POWR Ratings we stated above, we also have SCS ratings for Momentum, Stability, Sentiment, and Quality. Get all SCS ratings here.
Haverty Furniture Companies, Inc. (HVT)
HVT is a specialty retailer of residential furniture and accessories in the United States. The company offers furniture merchandise under the Havertys brand name. In addition, it also provides custom upholstery products and eclectic looks; mattress product lines under the Tempur-Pedic, Serta, Sealy, Stearns, and Foster names, as well as private label Skye name.
On May 19, the company announced that its board of directors approved a 7.1% raise in the quarterly dividend for its common stock, increasing it from $0.28 per share to $0.30 per share. The dividend is payable to its shareholders on June 21, 2023.
The company’s annual dividend of $1.20 translates to a 4.65% yield on current prices, while its four-year average dividend yield is 8.48%. Its dividend payouts have grown at CAGRs of 12.8% and 13.3% over the past three and five years, respectively. Also, it has a record of 10 years of consecutive dividend growth.
In the first quarter (ended March 31, 2023), HVT’s net sales came in at $224.75 million, while its gross profit margin came in at 59.1% compared to 59.0% in the same period last year. In the same period, the company’s net income and EPS came in at $12.37 million and $0.74, respectively.
In addition, its total current liabilities amounted to $138.57 million, declining 10.3% compared to $154.43 million as of December 31, 2022.
For the fiscal year 2024, HVT’s revenue and EPS are expected to increase 6.3% and 2.3% year-over-year to amount to $981.73 million and $4.12, respectively. Its EPS is expected to improve by 13.1% per annum in the next five years. Additionally, it surpassed the revenue and EPS estimates in three of the trailing four quarters, which is promising.
HVT’s shares have gained marginally over the past five days to close the last trading session at $25.81.
HVT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Value. Within the same B-rated industry, it is ranked #20. Click here to see the other ratings of HVT for Growth, Momentum, Stability, and Sentiment.
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FTDR shares were trading at $31.48 per share on Tuesday morning, up $0.20 (+0.64%). Year-to-date, FTDR has gained 51.35%, versus a 10.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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