The recent surge in interest rates and increased inflationary pressures affected consumer spending in the home improvement sector. While inflation has dampened the demand for new housing, demand for home renovations and remodeling services is expected to remain stable this year.
Given the backdrop, it could be wise for investors to take a bullish stance on fundamentally sound home improvement stocks Snap-on Incorporated (SNA), Acuity Brands, Inc. (AYI), and Haverty Furniture Companies, Inc. (HVT) which seem well-positioned to capitalize on the industry’s tailwinds and could be solid buys for this week.
The increasing desire for home remodeling services is fueling the expansion of the home improvement services market. The global market for home improvement services is projected to experience growth from $324.80 billion in 2022 to approximately $343.80 billion in 2023, exhibiting a CAGR exceeding 5%. Further, the market is expected to reach $423.90 billion by 2027.
Despite easing substantially from last year’s high, inflation remains twice above the Fed’s targeted level. Recently, Fed Chair Jerome Powell opined that U.S. inflation is unlikely to return to the 2% target until at least 2025. This, in turn, suggests that the central bank's fight against inflation is far from over, underscoring the possibility of more interest-rate hikes.
Due to the current high home prices and significantly higher mortgage rates than the previous year, fewer Americans are purchasing new homes. Instead, they focus on staying in their existing properties and investing in repairs, renovations, and enhancements that align with their lifestyle and requirements.
Furthermore, technological advancements such as visualization apps and 3D software continue to enhance the home remodeling experience for homeowners. Propelled by this, the global remodeling market is expected to experience substantial growth, with projections indicating a value of $5.46 billion by 2029.
Despite current market uncertainties, the increased demand among homeowners to enhance their homes’ functionality and aesthetics will likely keep the home improvement industry in a bright spot this year.
That being said, let us evaluate the fundamentals of the featured stocks in detail:
Snap-on Incorporated (SNA)
SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions worldwide for professional users. It operates through Commercial & Industrial Group; Snap-on Tools Group; Repair Systems & Information Group; and Financial Services segments. The company provides hand tools, including wrenches, sockets, ratchet wrenches, pliers, screwdrivers, etc.
On June 29, SNA introduced its line of carts, which come in various sizes, drawer arrangements, and an extensive selection of color and trim options. These carts cater to the diverse needs of technicians while also serving as an ideal supplementary accessory for individuals seeking extra storage space.
This addition should help the company to meet the growing demand for tool storage solutions and attract new customers.
On June 9, SNA paid its shareholders a quarterly dividend of $1.62 per share on its common stock. Since 1989, SNA has maintained an unbroken record of consistently paying quarterly dividends with no interruptions or reductions.
The company’s annual dividend of $6.48 translates to a 2.25% yield on its prevailing prices, while its four-year average dividend yield is 2.53%. Its dividend payouts have grown at CAGRs of 14.4% and 14.7% over the past three and five years, respectively. Also, it has a record of 13 years of consecutive dividend growth.
For the first quarter that ended April 1, 2023, SNA’s net sales increased 7.8% year-over-year to $1.18 billion, while its gross profit grew 10.3% from the year-ago value to $589.60 million.
The company’s attributable net earnings improved 14.4% and 13% from the prior-year quarter to $248.70 million and $4.60 per share, respectively. Also, its operating earnings rose 11.1% from the year-ago value to $326.10 million.
Street expects SNA’s revenue and EPS for the second quarter (ended June 30, 2023) to increase 4.4% and 6.3% year-over-year to $1.19 billion and $4.54, respectively. Moreover, the company surpassed the revenue and EPS estimates in each of the trailing four quarters, which is excellent.
Over the past year, the stock has gained 46.3% to close the last trading session at $288.19.
SNA’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Momentum and Stability. In the 57-stock B-rated Home Improvement & Goods industry, it is ranked #4. To see additional ratings of SNA for Growth, Value, and Sentiment, click here.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions through Acuity Brands Lighting and Lighting Controls (ABL); and the Intelligent Spaces Group (ISG) segments. Its offerings include commercial, architectural, and specialty lighting solutions. In addition, it also provides a building management platform and location-aware applications under the Distech Controls and Atrius brands.
On June 28, AYI declared a quarterly dividend of 13 cents per share to its shareholders, payable on August 1, 2023. The company’s annual dividend of $0.52 translates to a 0.32% yield on current prices, while its four-year average dividend yield is 0.36%.
On May 15, AYI acquired KE2 Therm Solutions, Inc., which specializes in developing and providing intelligent refrigeration control solutions that enhance profitability by improving system efficiency and reducing operational and service expenses. AYI will begin integrating KE2 Therm into Distech Controls within its Intelligent Spaces Group business segment.
Commenting on this, Martin Villeneuve, President of Distech Controls and SVP of Distributed Building Technology at AYI, said, “This acquisition allows us to expand our product offerings and reach new customers in the commercial refrigeration market. Distech Controls looks forward to working alongside the talented KE2 Therm team to create an even stronger, more competitive company.”
AYI’s net sales amounted to $1 billion for the third quarter of fiscal 2023 (ended May 31, 2023), while its gross profit rose marginally from the year-ago value to $447.30 million. The company’s EPS improved 6.8% from the prior-year quarter to $3.28.
Also, during the same period, its cash and cash equivalents came in at $359.30 million, increasing 60.9% compared to $223.20 million as of August 31, 2022.
The consensus revenue estimate for the fourth quarter (ending August 2023) is $1.04 billion. The consensus EPS estimate for the current quarter is $3.76. Its EPS is expected to improve by 12.8% per annum over the next five years.
Moreover, the company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 6.2% over the past month to close the last trading session at $163.08.
AYI’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value and Quality. Within the same B-rated industry, it is ranked #5. Click here to see AYI’s ratings for Growth, Momentum, Stability, and Sentiment.
Haverty Furniture Companies, Inc. (HVT)
HVT is a specialty retailer of residential furniture and accessories in the United States. The company offers furniture merchandise under the Havertys brand name. It also provides custom upholstery products and eclectic looks; mattress product lines under the Tempur-Pedic, Serta, Sealy, Stearns, and Foster names, as well as the private label Skye name.
On June 21, the company paid its shareholders a quarterly dividend of $0.30 per share on its common stock, representing an increase of 7.1% from its last quarterly dividend of $0.28 per share. This rise in quarterly dividend reflects HVT's optimistic perspective for the future, solid financial standing, and dedication to the well-being of its stockholders.
The company’s annual dividend of $1.20 translates to a 3.97% yield on current prices, while its four-year average dividend yield is 8.38%. Its dividend payouts have grown at CAGRs of 14.9% and 11.6% over the past three and five years, respectively. Also, it has a record of 10 years of consecutive dividend growth.
In the first quarter (ended March 31, 2023), HVT’s net sales came in at $224.75 million, while its gross profit margin came in at 59.1% compared to 59.0% in the same period last year.
During the same period, the company’s net income and EPS amounted to $12.37 million and $0.74, respectively. In addition, its total current liabilities amounted to $138.57 million, declining 10.3% compared to $154.43 million as of December 31, 2022.
For the fiscal year 2024, HVT’s revenue and EPS are expected to increase 2.3% and 6.3% year-over-year to amount to $981.73 million and $4.12, respectively. Its EPS is expected to improve by 13.1% per annum in the next five years. Additionally, it surpassed the revenue and EPS estimates in three of the trailing four quarters, which is promising.
HVT’s shares have gained 34.7% over the past year to close the last trading session at $30.22.
It’s no surprise that HVT has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Quality and a B for Value. Out of 57 stocks in the same industry, it is ranked #6.
In addition to the POWR Ratings we’ve stated above, we also have HVT’s ratings for Growth, Momentum, Stability, and Sentiment. Get all HVT ratings here.
What To Do Next?
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SNA shares were trading at $286.59 per share on Monday morning, down $1.60 (-0.56%). Year-to-date, SNA has gained 27.06%, versus a 16.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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