The home improvement trend has skyrocketed since the onset of the COVID-19 pandemic in March 2020. Since people began spending more time indoors than outdoors with the pandemic, home improvement and maintenance expenditure has grown significantly. Many people are also ‘flush with cash’ due to federal spending, and they’ve not been shy to spend even though inflation has climbed to its highest level in 31 years. The low-interest rates are also fueling the demand for home improvement.
With the economy’s recovery, property prices have moved up to unprecedented levels, and many homebuyers have had to pay more than they anticipated to secure a home. The high home prices have also encouraged many potential home buyers to spend money on improving their existing homes rather than purchase an expensive new one. Because both new and old homeowners have opted for renovations, the home improvement industry has benefited. The managing director of the Joint Center for Housing Studies, Chris Herbert, said, “Home remodeling will likely grow at a faster pace given the ongoing strength of home sales, house price appreciation, and new residential construction activity.”
Investors’ interest in the home improvement industry is evident in the SPDR Homebuilders ETF’s (XHB) 46.9% returns over the past year. Given this backdrop, we think it could be wise to invest in quality home improvement stocks Lowe’s Companies, Inc. (LOW), Builders FirstSource, Inc. (BLDR), and Mohawk Industries, Inc. (MHK) for the long term.
Lowe’s Companies, Inc. (LOW)
LOW operates home improvement and hardware stores. The Mooresville, N.C., company offers a range of products for maintenance, remodeling, repair, and decorating and provides home improvement products, such as lighting, electrical, and building materials. Also, it serves homeowners, renters, and professional customers.
On November 17, LOW announced its multi-year commitment to becoming the leading retail destination for aging-in-place and life-change solutions through the launch of its Lowe’s Livable Home. Lowe’s Livable Home could help it become the one-stop destination for expertise, services, and affordable products with a range of styles and budgets.
For the fiscal third quarter, ended October 29, 2021, LOW’s net sales increased 2.7% year-over-year to $22.91 billion. The company’s operating income increased 28.2% year-over-year to $2.78 billion. Its net earnings increased 174% year-over-year to $1.90 billion. And its non-GAAP EPS increased 117.5% year-over-year to $1.98.
Analysts expect LOW’s EPS and revenues for its fiscal year 2022 to increase 33.5% and 6.4%, respectively, year-over-year to $11.83 and $95.32 billion. It has surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 66.8% in price over the past year to close Friday’s trading session at $249.52.
LOW’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Growth, Sentiment, and Quality. It is ranked #6 of 61 stocks in the B-rated Home Improvement & Goods industry. Click here to check the additional ratings of LOW for Value, Momentum, and Stability.
Builders FirstSource, Inc. (BLDR)
BLDR is a supplier and manufacturer of building materials, manufactured components, and construction services for professional homebuilders, sub-contractors, remodelers, and consumers. The Dallas, Tex.-based company offers solutions ranging from manufacturing, supplying, and installing a range of structural and related building products.
On September 9, BLDR announced the acquisition of Apollo software assets from construction technology startup Katerra. The Apollo platform provides design collaboration and workflow, construction budgeting and scheduling, and field task assignment with mobile functionality. The acquisition builds upon its previous acquisition of the WTS Paradigm, with features and functionality to help streamline the construction process.
BLDR’s net sales for its fiscal third quarter, ended September 30, 2021, increased 140% year-over-year to $5.50 billion. The company’s adjusted net income increased 351.2% year-over-year to $696.70 million, while its adjusted EBITDA increased 244.4% year-over-year to $975.90 million.
BLDR’s EPS and revenue for fiscal 2021 are expected to increase 198.3% and 128.2%, respectively, year-over-year to $8.98 and $19.53 billion. It surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 91.1% in price to close Friday’s trading session at $70.24.
BLDR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Value, Momentum, and Sentiment. It is ranked #14 in the same industry. To check the additional ratings of BLDR (Growth, Stability, and Quality), click here.
Mohawk Industries, Inc. (MHK)
MHK is a flooring manufacturer that creates products for residential and commercial spaces. The Calhoun, Ga., company’s segments include Global Ceramic, Flooring North America, and Flooring Rest of the World.
On September 27, MHK announced its signing of The Climate Pledge, a sustainability-driven effort co-founded by Amazon and Global Optimism in 2019. By signing the pledge, MHK agrees to incorporate several climate-sensitive strategies, including a commitment to measure and report greenhouse gas emissions regularly. And in accordance with the Paris agreement, it also decided to achieve net-zero annual carbon emissions by 2040 and implement decarbonization strategies.
For its fiscal third quarter, ended September 30, 2021, MHK’s net sales increased 9.4% year-over-year to $2.81 billion. The company’s adjusted net earnings increased 16.7% year-over-year to $272 million, while its adjusted EPS increased 21.1% year-over-year to $3.95.
Analysts expect MHK’s EPS and revenue for its fiscal year 2021 to increase 67.3% and 17%, respectively, year-over-year to $14.77 and $11.17 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. And the stock has gained 40% in price over the past year to close Friday’s trading session at $177.34.
MHK’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to a Buy in our proprietary rating system. It has a B grade for Value, Momentum, and Quality.
It is ranked #11 in the Home Improvement & Goods industry. Click here to check the additional ratings of MHK for Growth, Stability, and Sentiment.
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LOW shares were trading at $255.92 per share on Monday morning, up $6.40 (+2.56%). Year-to-date, LOW has gained 61.73%, versus a 27.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...
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