Housing has been one of the best performing sectors amid the pandemic thanks to a surge in home buying and home improvement projects. Housing experienced a sharp V-Shaped recovery with mortgage applications hitting new highs. Record-low mortgage rates, a shortage of inventory, and endless bidding wars drove home prices. According to the recent data posted by the S&P Case-Shiller Index, home prices surged 5.7% annually in August 2020, up from 4.8% in July 2020.

The SPDR S&P Homebuilders ETF (XHB), which represents the homebuilding segment of the S&P Total Market Index, has gained 113% since hitting its 52-week low in March, versus the S&P 500’s 42% return over period. As the pandemic dragged on, consumer behavior shifted, with an increasing focus on home improvements, renovations, remodeling, repairs, and maintenance, away from discretionary spending like entertainment, traveling, and dining.

The favorable backdrop should continue to drive the performance of home improvement companies like Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW), The Sherwin-Williams Company (SHW) and Whirlpool Corporation (WHR).

Home Depot, Inc. (HD)

HD is a retailer of home improvement products such as building materials, lawn and garden products, and home improvement tools. The company also provides home maintenance services. HD has been operating approximately 2,300 retail stores throughout the country.

HD has recently signed a lease to move into a former Bed Bath & Beyond store on Manhattan’s Upper East Side, which spans more than 120,000 square feet over four floors. Moreover, in line with the learn-from-home trend, HD has expanded at-home learning resources to its digital DIY workshops library for kids, with virtual field trips providing insights into how products come to life and eventually, make it to the retailer’s shelves.

HD is scheduled to report its fiscal third quarter financial results on November 17^th, 2020. Despite challenges posed by the pandemic, HD had an excellent second quarter that ended in August 2020. The company posted a top-line of $38.1 billion, growing 23.4% year-over-year. Sales per retail square foot increased 23.5% compared to year-ago quarter to $629.38. HD generated $9.1 billion in cash flow from operations, improving 237% year-over-year, as customer transactions increased 12.3% year-over-year to 511.5 million.

EPS for the quarter came in at $4.02, increasing 26.8% year-over-year and beating the consensus estimates by 8.4%. In the last couple of years, management has spent heavily to integrate its physical and online businesses. HD is focusing on supply chain management rather than relying on opening more stores to boost growth. Hence, analysts expect current year EPS to grow 10.9% year-over-year.

HD closed yesterday’s trading session at $269.63, gaining 25.7% year-to-date. The stock is presently trading just 8% below its all-time high of $292.95 and is up nearly 25% in the past six months.

How does HD stack up for the POWR Ratings?

A for Trade Grade

B for Buy & Hold Grade

B for Peer Grade

A for Industry Rank

B for Overall POWR Rating

The stock is also ranked #7 out of 69 stocks in the Home Improvement & Goods industry.

Lowe’s Companies, Inc. (LOW)

LOW operates as a home improvement retailer in the United States and Canada, serving approximately 18 million customers a week. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. As of July 31, 2020, LOW’s operated 1,968 home improvement and hardware stores. The company also sells its products through its websites and mobile application.

LOW has recently announced its plan to hire 20,000 associates across its US stores and regional distribution centers to support customer demand this holiday season and beyond. Moreover, the company issued a $4 billion-worth series of notes earlier this month to purchase its existing notes in the concurrent tender offers and further strengthen its liquidity position.

LOW is scheduled to report the financial results of its fiscal third quarter that ended October 2020 on November 18^th, 2020. The company delivered very strong second quarter results, with all merchandising divisions posting comparable sales growth exceeding 20% and all US geographic regions delivering comparable sales growth of at least 30%. Net sales for the quarter were $27.3 billion compared to $21 billion in the comparable quarter last year.

EPS for the last quarter came in at $3.75, 74% higher than year-ago value of $2.15. This also implied a 27.1% earnings surprise. LOW’s cost-cutting program and big investments into omnichannel (bricks and clicks) are likely to drive similar growth in the future. Analysts expect current year EPS to rise 49.2% year-over-year. Furthermore, LOW’s is a Dividend Aristocrat, having paid and raised the dividend without fail for over 45 years. Hence, investors may expect the company to increase its payout.

LOW closed yesterday’s trading session at $160.75, gaining 36.6% year-to-date. The stock is presently trading just 11% below its all-time high of $180.67, and is up more than 55% in the past six months.

LOW’s POWR Ratings reflect this promising outlook. It has an overall rating of “Buy” with an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. Among the 69 stocks in the Home Improvement & Goods industry, it’s ranked #8.

The Sherwin-Williams Company (SHW)

Founded in 1866, SHW is a global leader in the manufacture, development, distribution, and sale of paint, coatings and related products primarily in North and South America. SHW’s products are sold exclusively through a chain of more than 4,900 company-operated stores and facilities. It operates through the following segments – The Americas Group, Consumer Brands Group, Performance Coatings Group, and Administrative.

SHW is on an expansion spree lately as it plans to invest a minimum of $600 million to build its new global headquarters in downtown Cleveland of approximately 1-million-square-feet in size, and a new R&D center in the Brecksville that will be approximately 500,000-square-feet in size to serve as the corporate anchor for a new mixed-use development project. Moreover, SHW remains committed to expand its retail operations and is focused on capturing a larger share of its end-markets. The company plans to open around 50 new stores in 2020.

Temporary store closures as a result of the pandemic impacted retail sales this year. However, in its most recent third quarter results, consolidated net sales increased 5.2% year-over-year to $5.1 billion. The increase was primarily driven by 23.5% higher sales in the Consumer Brands segment as the company witnessed strong demand for architectural coatings and architectural DIY (Do It Yourself) paint in North America. This was able to offset some of the negative impact of lower revenues in the other units due to weakened manufacturing and industrial output.

EPS for the quarter came in at $7.66, compared to $6.16 per share in the year-ago quarter. Continued and unprecedented strength in its DIY business, solid demand across residential repaint, and improving demand in industrial coatings businesses is likely to drive the company’s favorable sales momentum in the near future. Hence, analysts expect current year EPS to grow 13% year-over-year.

SHW closed yesterday’s trading session at $692.09, with a year-to-date gain of 19.4%. The stock is presently trading just 4.7% below its all-time high of $725.91, and is up more than 32% in the past six months.

SHW is rated “Strong Buy” in our POWR Ratings system, consistent with its insulated business model. It also has an “A” for Trade Grade, Buy & Hold Grade and Industry Rank, and a “B” in Peer Grade. It is also ranked #1 out of 69 stocks in the Home Improvement & Goods industry.

Whirlpool Corporation (WHR)

WHR manufactures and markets home appliances and related products worldwide. The company’s principal products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers, and other portable household appliances. It operates through four segments – North America, Europe, Middle East and Africa (EMEA), Latin America, and Asia.

Demand for appliances has bounced back as consumers stuck at home are diverting their discretionary income into the home. WHR’s net sales grew 3.9% globally to $5.3 billion, driven by solid industry demand across the globe in the third quarter ended September 2020. Organic net sales increased 7% compared to the year-ago quarter to $5.45 billion. Its EMEA market saw sales growth of 15.4%, while sales in Latin America rose 13.7%, but coronavirus-induced supply constraints drove North America and Asia sales 1.6% and 1.4% lower, respectively, in the quarter.

EPS for the quarter came in at $6.27, implying a 12.6% increase year-over-year. WHR gives investors another reason to cheer by raising its dividend for the eighth consecutive year. It will now pay out a dividend of $1.25 per share, which is a 4.2% rise from the prior amount of $1.20. Its cost-cutting initiatives and strong demand place it well for further growth. EPS for the succeeding year is expected to increase 21.7% year-over-over.

Valor Inovação, a leading media publication in Brazil recently recognized WHR among Brazil’s overall top ten innovative companies, and the “most innovative company” in the electronics category for its sixth consecutive year.

WHR closed yesterday’s trading session at $186.38, gaining 29.8% year-to-date. It has recently hit 52-week high of $207.3, and is up more than 69% in the past six months.

It’s no surprise that WHR is rated a “Buy” in our POWR Ratings system. It has a grade of “A” in Trade Grade and Industry Rank, and a “B” in Buy & Hold Grade and Peer Grade. In the 69-stock Home Improvement & Goods Industry, it is ranked #11.

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HD shares were trading at $265.51 per share on Friday afternoon, down $4.12 (-1.53%). Year-to-date, HD has gained 23.78%, versus a 2.75% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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