The home improvement industry has been surging over the past year as consumers spent more time indoors amid a hastily adopted remote-working-and-learning culture courtesy of the COVID-19 pandemic. Now that more millennials are buying homes, given low mortgage rates, or are remodeling their old homes to make their living spaces more comfortable, the home improvement market is gaining noteworthy momentum. The industry has been enjoying favorable investor sentiment, as is evident in the SPDR Homebuilders ETF’s (XHB) 130.3% returns over the past year, compared to the S&P 500’s 46.4% gains. The global home improvement market is expected to grow at a CAGR of 4.5% over the next five years to reach $1155.79 billion in 2026.
However, despite being one of the major beneficiaries of this trend, The Home Depot, Inc. (HD)–one of the largest home improvement retailers in the world–has been struggling lately. HD’s profitability was negatively impacted in the fourth quarter, ending January 31, 2021, due to surging lumber and transportation costs. Its operating expenses were also significantly higher during this period.
Conversely, here are some home improvement players that have been benefiting consistently from the industry tailwinds: Lowe’s Companies, Inc. (LOW), The Sherwin-Williams Company (SHW), and Stanley Black & Decker, Inc. (SWK). So, we think it could be wise to invest in these stocks in lieu of HD.
Lowe’s Companies, Inc. (LOW)
LOW is a home improvement retailer that offers various products for construction, maintenance, repair, remodeling, and decorating. In addition, it offers home improvement products under categories such as appliances, decor, lighting, lawn and garden, and outdoor living.
This month, LOW introduced an upgraded shopping experience for PRO customers. It offers them various perks, like new and enhanced products and services, and free phone charging stations to make their shopping experiences convenient and quicker. This move should help LOW to its PRO customers and ultimately increase its sales.
In March, the company announced the introduction of free family project kits coupled with project inspiration for a month-long “SpringFest” celebration. Since people are spending more time at home because of the pandemic, the project should significantly improve LOW’s customers’ experience.
LOW’s net sales increased 26.7% year-over-year to $20.31 billion in the fourth quarter, ended January 29, 2021. Its net earnings grew 92.1% from the year-ago value to $978 million, while its operating income grew 59.1% year-over-year to $1.52 billion. The company’s EPS increased 100% from its year-ago value to $1.32.
A $2.49 consensus EPS estimate for current quarter, ending April 30, 2021, represents a 40.7% improvement year-over-year. The consensus revenue estimate of $23.12 billion for the current quarter represents a 26.2% increase from the same period last year. The stock has gained 113.2% over the past year.
LOW’s POWR Ratings reflect this promising outlook. The company has a B overall rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LOW is also rated A in Momentum, and B in Sentiment and Quality. Within the A-rated Home Improvement & Goods industry, it is ranked #15 of 64 stocks.
To see additional POWR Ratings for Growth, Value, and Stability for LOW, Click here.
The Sherwin-Williams Company (SHW)
Founded in 1866, SHW develops, manufactures, and sells architectural paints, coatings, and related products to professional, industrial, commercial, as well as retail customers. The company operates through three segments: The Americas Group, Consumer Brands Group, and Performance Coatings Group.
In March, SHW introduced an exclusive program called PRO+. The program offers benefits such as personalized service and support, online access to free online courses and industry resources, price cuts and 0% interest credit to professional customers to manage their business. This should help SHW in growing its customer base and increasing its sales.
In January, the company introduced its new Living Well collection with 11 specially curated color palettes for customers. This was done to improve customer experience because more people have now become mindful of their living spaces.
In the fourth quarter, ended December 31, 2020, SHW’s net sales increased 9.1% year-over-year to $4.49 billion. Its gross profit increased 12.4% from its year-ago value to $2.13 billion, while its net income increased 63.7% year-over-year to $407 million. SHW’s EPS increased 67.7% from its year-ago value to $4.46.
Analysts expect SHW’s revenue for the next quarter, ending June 30, 2021, to be $5.04 billion, representing a 10.1% increase year-over-year. The company’s EPS is likely to increase 11.8% for the next quarter. SHW’s stock has gained 61.7% over the past year.
SHW’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings also evaluate stocks by various components, such as Value, Momentum, and Quality.
SHW is rated an A in Quality, and a B in Stability. In the same industry, it is ranked #27.
In total, we rate SHW on eight different levels. Beyond what we’ve stated above, we have also given SHW grades for Growth, Value, Momentum, and Sentiment. Get all the SHW ratings here.
Stanley Black & Decker, Inc. (SWK)
Incorporated in 1843, SWK engages in the tools and storage, industrial, and security businesses worldwide. It provides its services to consumers, retailers, educational, financial, and healthcare institutions. Based on the company’s revenue, it is ranked #1 in tools and storage, #2 in security services and is a global leader in engineered fastening.
In March, SWK was awarded the 14 Popular Mechanics 2021 Tool Awards for delivering the year’s best tool with reliable performance and strong value. This award should highlight the company’s brand and help it to stand out more in the market.
During the fourth quarter, ended December 31, 2020, SWK’s total revenue increased 19% year-over-year to $4.40 billion. Its gross margin increased by 390 basis points from the year-ago value to 35.6%, while its operating margin was up by 290 basis points from the prior-year quarter to 15.6%. The company’s EPS grew 51% from the prior-year quarter to $3.29.
SWK is expected to witness revenue growth of 7.4% for fiscal 2022. Its EPS is estimated to increase 13.8% in the current year, ending December 31, 2021. Over the past year, SWK’s stock has gained 83.7%.
SWK’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. SWK has an A grade for Growth. Among the 64 stocks in the same industry, it is ranked #19.
Click here to see the additional POWR Ratings for SWK (Value, Momentum, Sentiment, Stability, and Quality).
The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
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HD shares were trading at $327.33 per share on Wednesday afternoon, up $3.37 (+1.04%). Year-to-date, HD has gained 24.00%, versus a 11.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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