The home improvement industry fared well last year despite high inflation and supply shortages. According to Angi’s 2022 State of Home Spending report, homeowners spent an average of $12,904 on home improvement, home maintenance, and emergency repairs in 2022 across an average of 12.5 projects.
Americans spent an average of $8,484 on home improvement projects, reflecting a 2% increase from the pandemic era.
As the economy slows and inflation moderates, the chief operating officer at Kapitus, Ben Johnston, said, “To date, the employment rate has remained solid, despite higher interest rates, and high earners have not shown a meaningful decline in purchasing power.”
He added, “In 2023, we expect high earners to continue investing in residential real estate and for contractors to remain in demand.”
Additionally, the Inflation Reduction Act (IRA) is expected to entice homeowners to embark on renovation projects. The act allows homeowners to cut their tax bills even more if they install new energy-efficient windows, doors, water heaters, furnaces, air conditioners, etc. This might reap the benefits of new incentives.
Furthermore, the global home improvement market is expected to grow at a CAGR of 5.2% between 2022 and 2026 due to rapid urbanization and high demand for DIY home remodeling and renovations. On top of it, the remodeling market size exceeded $4.07 trillion in 2022 and is expected to surpass $6 trillion by 2032, growing at a CAGR of 3.5%.
Given the backdrop, adding fundamentally strong home improvement stocks Lowe’s Companies, Inc. (LOW), The Sherwin-Williams Company (SHW), and Bassett Furniture Industries, Incorporated (BSET) to your portfolio could be wise.
Lowe’s Companies, Inc. (LOW)
LOW is a home improvement retailer operating internationally. The company offers a line of construction, maintenance, repair, remodeling, and decorating products. It also provides installation services.
On January 12, 2023, LOW announced that its retail media network’s advertising sales and operations departments would move in-house, effective by the end of this month. This should allow LOW’s One Roof Media Network to own the end-to-end customer experience for brand advertisers and partner with them to deliver a richer commerce experience for its customers and boost its returns.
On December 7, 2022, LOW’s CEO Marvin R. Ellison said, “We are building on our momentum with the next chapter of our Total Home strategy, designed to enhance our omnichannel capabilities and position Lowe’s as a one-stop shop for DIY and Pro customers to get everything they need across all of their projects.”
In addition, backed by its continued momentum and strong cash generation capabilities, the board of directors authorized a new $15 billion share repurchase program.
On November 11, 2022, the company’s board of directors declared a quarterly dividend of $1.05 per share to its shareholders, payable on February 8, 2023. Its four-year average dividend yield is 1.61%, and its annual dividend of $4.20 yields 2.03% at the current price level.
Its dividend payouts have increased at a 22.9% CAGR over the past three years and a 20.1% CAGR over the past five years. LOW has a record of 59 years of consecutive dividend growth.
In the fiscal third quarter that ended October 28, LOW’s net sales increased 2.4% year-over-year to $23.48 billion. Its gross margin grew 3% from the prior-year quarter to $7.82 billion. The company’s net earnings and adjusted EPS came in at $154 million and $3.27, respectively.
The consensus EPS estimate of $2.24 for the fourth quarter (ending January 31, 2023) indicates a 26% year-over-year improvement. The consensus revenue estimate for the current quarter of $22.79 billion reflects an increase of 6.8% from the prior year. It surpassed the EPS estimate in each of the trailing four quarters, which is excellent.
Over the past three months, the stock has gained 10% to close the last trading session at $206.41.
LOW’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The Sherwin-Williams Company (SHW)
SHW develops, distributes, and sells paints, coatings, and related products to professional, industrial, commercial, and retail customers. It operates through three segments: The Americas Bunch; Consumer Brands Group; and Performance Coatings Group.
On November 8, 2022, SHW announced an agreement to acquire Specialized Industrial Coatings Holding (SIC Holding), a venture of Peter Möhrle Holding and GP Capital UG that includes Oskar Nolte GmbH and Klumpp Coatings GmbH. Through this acquisition, SHW should have the opportunity to accelerate profitably in the international industrial wood market.
Additionally, the company stands to gain from the excellent technical and commercial teams at Oskar Nolte and Klumpp Coatings and their connections to local and international clients, all of which SHW can further exploit across Europe and beyond.
SHW has increased its dividend for 44 consecutive years. Its dividend payouts have grown at a 16.8% CAGR over the past three years, and the current dividend of $2.40 yields 1% on the current price level. It paid a quarterly dividend of $0.60 per common share on December 2, 2022.
SHW’s net sales increased 17.5% year-over-year to $6.05 billion in the fiscal third quarter that ended September 30, 2022. Its gross profit grew 21% year-over-year to $2.59 billion. Its adjusted EBITDA came in at $1.12 billion, up 34.8% year-over-year. Also, the company’s net income and net income per share grew 36.4% and 39.4% year-over-year to $685.10 million and $2.62, respectively.
Analysts expect SHW’s revenue to increase 10.4% year-over-year to $5.26 billion in the fourth quarter, which ended on December 31, 2022. The company’s EPS for the about-to-be-reported quarter is expected to increase 38.3% year-over-year to $1.85. Over the past three months, the stock has gained 17.3% to close the last trading day at $249.36.
SHW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our POWR Ratings system. SHW also has a B grade for Growth and Quality. Among the 60 stocks in the same industry, it is ranked #15.
Click here to see the additional POWR Ratings for SHW (Value, Momentum, Stability, and Sentiment).
Bassett Furniture Industries, Incorporated (BSET)
BSET develops, manufactures, sources, sells, and distributes home furnishings internationally. It operates in three segments: Wholesale; Retail company-owned stores; and Logistical services. The company operates a network of more than 63 company-owned and 34 licensee-owned stores.
On January 12, 2023, the company announced a quarterly dividend of $0.16 per share of common stock, payable on February 24, 2023. BSET’s four-year average dividend yield is 5.72%, and its current dividend of $0.64 translates to a 3.38% yield. The company’s dividend payouts have grown at CAGRs of 6.3% and 7.4% over the past three and five years, respectively.
On September 6, 2022, BSET acquired the capital stock of Noa Home Inc., a mid-priced e-commerce furniture retailer based in Montreal, Canada. Noa operates in Canada, Australia, Singapore, and the United Kingdom and has had net revenues of C$2 million ($1.49 million) for its most recent fiscal year.
The acquisition is expected to provide BSET with a stronger online presence and allow the company to attract more digitally native customers.
For the fiscal fourth quarter that ended November 26, 2022, BSET’s net sales of furniture and accessories increased 5.8% year-over-year to $121.02 million, and its gross profit grew 10.8% year-over-year to $64.24 million.
The company’s income from operations rose marginally from the year-ago value to $10.67 million, while its net income amounted to $5.03 million for the same period. In addition, BSET’s EPS came in at $0.55, up 5.8% year-over-year.
Street expects BSET’s EPS and revenue for the fiscal year 2024 (ending November 2024) to increase 22.8% and 0.8% year-over-year to $2.05 and $445.19 million, respectively. Also, the company surpassed the EPS estimates in three of the trailing four quarters.
Shares of BSET have gained 42.4% over the past year to close the last trading session at $18.92.
BSET’s POWR Ratings reflect its promising outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system. The stock has an A grade for Quality and a B for Value. Within the same industry, it is ranked #5.
To see additional ratings of BSET for Growth, Momentum, Stability, and Sentiment, click here.
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LOW shares were trading at $205.13 per share on Wednesday afternoon, down $1.28 (-0.62%). Year-to-date, LOW has gained 3.49%, versus a 4.11% 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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