October’s Consumer Price Index (CPI) and Producer Price Index (PPI) rose lower than expected, indicating that inflation is finally cooling. This could bolster the discretionary expenses of households and businesses.
Moreover, the Inflation Reduction Act (IRA), signed into law in August, has enhanced provisions for home improvement projects. Homeowners can cut their tax bills even more if they install new energy-efficient windows, doors, water heaters, furnaces, air conditioners, etc. This might act as new incentives.
On top of it, the global home improvement market in 2022 is valued at $342 billion and is predicted to exhibit expansion at a CAGR of 6.7% over the next eight years due to the high demand for DIY home remodeling and renovations.
Given this backdrop, quality home improvement stocks The Home Depot, Inc. (HD), The Sherwin-Williams Company (SHW), and Acuity Brands, Inc. (AYI) could be solid buys now. However, fundamentally weak stocks GrowGeneration Corp. (GRWG) and Bed Bath & Beyond Inc. (BBBY) might be best avoided.
Stocks to Buy:
The Home Depot, Inc. (HD)
HD functions as a home improvement retailer and operates the Home Depot stores that sell various building materials, home improvement products, and lawn and garden products. The company also provides installation, home maintenance, and professional service programs to DIY and professional customers.
On August 18, HD announced a second-quarter cash dividend of $1.90 per share, which was the 142nd consecutive quarter the company has paid a cash dividend. The company also authorized a new $15 billion share repurchase program. This reflects the strong cash position of the company.
HD’s net sales increased 5.6% year-over-year to $38.87 billion in the fiscal third quarter ended October 30, 2022. Its operating income grew 6.1% year-over-year to $6.15 billion. In addition, its net earnings and EPS came in at $4.34 billion and $4.24, up 5.1% and 8.2% from the year-ago values, respectively.
The company reaffirmed fiscal 2022 guidance of comparable sales growth of approximately 3%, operating margin of approximately 15.4%, and its earnings-per-share-percent-growth to be in the mid-single digits.
Analysts expect HD’s revenue to increase 0.8% year-over-year to $36.01 billion for the fourth quarter ending January 2023, while its EPS is expected to increase 3.3% year-over-year to $3.32 in the same period. The company surpassed EPS estimates in each of the four trailing quarters, which is impressive.
The stock has gained 12.8% over the past month and 8.8% over the past five days to close its last trading session at $311.93.
This promising prospect is reflected in HD’s POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
HD has a B grade for Stability, Sentiment, and Quality. HD is ranked #16 out of 60 stocks in the Home Improvement & Goods industry.
Click here to access HD’s ratings for Growth, Value, and Momentum.
The Sherwin-Williams Company (SHW)
SHW develops, manufactures, and distributes paints, coatings, and related products to its customers. It operates through three segments: The Americas Group; Consumer Brands Group; and Performance Coatings Group.
On November 8, SHW announced that it would acquire German-based Specialized Industrial Coatings Holding, a Peter Möhrle Holding, and GP Capital UG venture. This is expected to bolster the company’s position in the global industrial wood market.
On October 11, SHW announced an agreement to acquire Industria Chimica Adriatica S.p.A. (ICA), an Italian designer, manufacturer, and distributor of industrial wood coatings. This should increase its operative capability.
For the fiscal third quarter ended September 30, SHW’s net sales increased 17.5% year-over-year to $6.05 billion. Net income grew 36.4% year-over-year to $685.10 million for the same period. In addition, its adjusted net income per share improved 35.4% year-over-year to $2.83.
The consensus revenue estimate for the fiscal fourth quarter ending December 2022 of $5.25 billion represents a 10.3% improvement year-over-year. Analysts expect SHW’s EPS for the same period to increase 39.5% year-over-year to $1.87. The company surpassed revenue estimates in three of the four trailing quarters.
SHW has gained 19.3% over the past month to close its last trading session at $240.59. It has gained 2.8% intraday.
It’s no surprise that SHW has an overall rating of B, which translates to a Buy in our proprietary rating system. It also has a B for Growth and Quality. Within the Home Improvement & Goods industry, SHW is ranked #10.
To see SHW’s ratings for Value, Momentum, Stability, and Sentiment, click here.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL); and the Intelligent Spaces Group (ISG).
On September 29, the Board of Directors of AYI declared a quarterly dividend of 13 cents per share. The dividend was payable on November 1, 2022. This reflects upon the company’s strong cash position.
For the fiscal fourth quarter ended August 31, AYI’s net sales increased 11.8% year-over-year to $1.11 billion. The company’s adjusted EBITDA increased 6.8% year-over-year to $182.90 million. AYI’s adjusted diluted earnings per share for the same period increased 20.8% from the prior-year period to $3.95.
The consensus EPS estimate for the fiscal first quarter ending November 2022 of $3.01 represents a 5.6% improvement year-over-year. Analysts expect AYI’s revenue for the same period to increase 6.9% year-over-year to $989.89 million. The company surpassed EPS estimates in each of the four trailing quarters.
AYI has gained 15.9% over the past month to close its last trading session at $191.23. It has gained 2.6% intraday.
AYI has an overall A rating, which translates to a Strong Buy in our proprietary rating system. It is also rated an A for Quality and a B for Value. AYI is ranked #2 within the same industry.
To see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for AYI, click here.
Stocks to Avoid:
GrowGeneration Corp. (GRWG)
GRWG owns and operates retail hydroponic and organic gardening stores in the United States. It markets and distributes nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, vertical benching, and accessories for hydroponic gardening.
GRWG’s net sales came in at $70.85 million for the fiscal third quarter ended September 30, down 38.9% year-over-year. Its gross profit came in at $18.33 million, decreasing 46.2% year-over-year.
Its income from operations stood at negative $8.09 million, down significantly from $4.68 million for the year-ago period. Also, its net income per share came in at a negative $0.12.
For its fiscal fourth quarter ending December 2022, analysts expect GRWG’s revenue to decline 42.8% year-over-year to $51.78 million. The company’s EPS is expected to decline 57.1% year-over-year to negative $0.11 for the same period.
The stock has declined 73.7% over the past year and 51.5% year-to-date to close its last trading session at $6.33.
GRWG’s POWR Ratings are consistent with its bleak outlook. The company has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It also has an F grade for Stability and a D for Growth, Value, Sentiment, and Quality. Within the same industry, GRWG is ranked #59.
In addition to the POWR Ratings we’ve stated above, one can see GRWG’s rating for Momentum here.
Bed Bath & Beyond Inc. (BBBY)
BBBY operates as a retail store chain. The company sells domestic merchandise, bath items, kitchen textiles, and home furnishings through various websites and applications.
It was recently reported that some BBBY suppliers say they are restricting or halting shipments even after the company secured new financing. Some suppliers remain concerned about the company and have reportedly cut off or cut back on merchandise they ship to the company.
BBBY’s net sales declined 27.6% year-over-year to $1.44 billion for the second quarter that ended August 27. Its gross profit declined 33.7% year-over-year to $398.26 million. In addition, its adjusted EPS came in at negative $3.22 for the same period.
BBBY’s EPS for the fiscal third quarter ending November 2022 is expected to be negative $1.82, indicating a decline of 627.8% year-over-year. Its revenue for the same period is expected to decline 23.4% year-over-year to $1.44 billion. In addition, BBBY has missed the consensus EPS estimates in all of the trailing four quarters.
BBBY’s stock has declined 82.7% over the past year and 76.7% over the past three months to close the last trading session at $3.73.
BBBY has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The stock also has an F grade for Stability and Sentiment. It is ranked #57 in the same industry.
Click here to access BBBY’s ratings for Growth, Value, Momentum, and Quality.
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HD shares were trading at $316.00 per share on Wednesday afternoon, up $4.07 (+1.30%). Year-to-date, HD has declined -22.41%, versus a -15.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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