Upholstery furniture designer and supplier La-Z-Boy Incorporated (LZB) has been benefiting from the pandemic tailwinds, as the demand for furniture has been rising significantly owing to the remote working culture, strong housing market, and increased spending on home goods and improvements.
The stock has gained 58.6% over the past nine months, and 16.6% over the past year. However, the shrinking housing supply in the market has had an adverse effect on the furniture demand. This has led LZB to decline 11.9% over the past month.
As the mass vaccination drive is reducing the need for social distancing and indoor confinement, the demand for home furniture is declining. However, the furniture market is expected to regain momentum in the long run.
The following factors are expected to shape the performance of LZB:
Outdoor activities and travelling are expected to gain momentum in the upcoming months following nearly a year of social distancing, which might shrink the demand for home furniture. However, this is expected to be offset by the rising popularity of remote working. As people move to the suburbs from crowded metropolitans as businesses change their operational models to suit work-from-home requirements, the demand for residential furniture should rise significantly.
Moreover, because of improved international trade activities with subsiding COVID-19 restrictions and initiatives of the new administration, LZB’s export segment will likely pick up pace from the second quarter of 2021.
Robust Profitability and Growth Estimates
LZB’s trailing 12-month gross profit margin of 44.64% is 31.9% higher than the industry average of 33.84%. The company’s trailing 12-month net income and leveraged free cash flow margins of 4.5% and 16.64% are significantly higher than the industry averages of 2.22% and 7.5% respectively.
Moreover, LZB’s ROE, ROA, and ROTC of 9.54%, 4.09%, and 9.03% compare favorably with the respective industry averages.
Analysts expect LZB’s EPS to rise 53.1% in the current quarter (ending April 2021), 205.6% in the next quarter (ending July 2021), and 16.2% in fiscal 2021. The company has an impressive earnings surprise history as well, as it beat the Street EPS estimates in each of the trailing four quarters. Consensus revenue estimates indicate 30.3% rise in the current quarter, 45.2% in the next quarter, and a slight improvement in the current year.
Consensus Price Target and Ratings Indicate Potential Upside
LZB is currently trading 14.7% below its all-time high of $46.34, which it hit on January 25, 2021. Analysts expect the stock to break out of this level to hit $47.50 soon, indicating a potential upside of 20.1%.
LZB has an average broker rating of 1.5, indicating favorable analyst sentiment. Out of 3 Wall Street Analysts that rated the stock, one rated it Strong Buy, and one rated it Buy.
Favorable POWR Ratings
LZB has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with the weighting of each optimized to improve overall performance.
It has a grade of A for Quality and B for Growth. This is justified given the company’s solid profitability and growth potential. LZB has an impressive growth history as well, as its total assets and leveraged free cash flow margin have improved at CAGRs of 24.9% and 35.3%, respectively, over the past three years.
There are 33 other stocks in the Home Improvement Goods industry with an overall rating of A or B. Click here to see them.
LZB is well-positioned to reach new highs as the global economy revives and accommodates a new lifestyle. With the majority of people getting used to the remote working culture, LZB’s same-store sales increased 6.3% year-over-year in the fiscal first quarter ended January 23, 2021. With $390.32 million in cash and cash equivalents and $289.41 million long-term debt, the company has a strong balance sheet and liquidity position, making it well-positioned to capitalize on the projected rise in demand.
With the help from Microsoft Corporation’s (MSFT) Microsoft Azure, the company launched the Flo chatbot on February 4, 2021, to streamline the customer inquiry process while delivering differentiated digital experiences to policyholders, meeting people wherever they are within their customer journey.
Impressive Recent Financials
PGR’s total revenues for January 2021 increased 11.4% year-over-year to $4.20 billion. Net premiums were written increased 13.8% year-over-year to $4.10 billion for the same period. Moreover, net income increased 81.6% year-over-year to $557.50 million. PGR has also surpassed the consensus EPS estimate in each of the trailing four quarters.
Consensus Price Target Indicates Solid Upside
Wall Street analysts expect the stock to hit $99.38 in the near term, which indicates a potential upside of 14.2%.
Favorable POWR Ratings
PGR has an overall rating of B which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Out of these categories, the stock has a grade of B for Stability.
We have also given PGR grades for Momentum, Sentiment, Quality, Growth, and Value. Click here to get all of PGR’s ratings.
The stock is ranked #14 of 61 stocks in the B-rated Insurance – Property & Casualty industry.
There are fourteen other top-rated stocks in the same industry. Click here to access them.
The recovering economy should help the company witness rising demand for its products. Moreover, PGR is strategically positioned to gain based on its impressive financials and strategic acquisitions.
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LZB shares were trading at $39.38 per share on Tuesday afternoon, down $0.17 (-0.43%). Year-to-date, LZB has declined -1.15%, versus a 2.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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