The rise in interest rates and increased inflationary pressures depressed consumer spending in the home improvement sector. However, with inflation declining and indications of a possible pause in rate hikes, there is optimism for a revival in demand for home improvement.
Against this background, it may be wise to add fundamentally sound stocks Front Door, Inc. (FTDR), Steelcase Inc. (SCS), and Haverty Furniture Companies, Inc. (HVT) to your watchlist.
While inflation remains stubbornly high despite easing, consumer spending rose 0.8% in April, the Department of Commerce reports. While stronger-than-expected economic data reinforce the need for further rate hikes, uncertainty in the regional banking sector kept investors hopeful of a pause.
Ben Johnston, chief operating officer at Kapitus, expect continued demand for home renovations as home purchases decline. He expects the overall cost of home renovation to stabilize in 2023 due to a slowing economy and declining inflation.
Homeowners are investing in upgrades for improved functionality, energy efficiency and aesthetics amid high interest rates and rising per capita disposable income.
The global home improvement services market is expected to reach $423.90 billion by 2027, growing at a CAGR of 5%, powered by advances in technology, such as visualization apps and 3D software, that enhance the home remodeling experience. In addition, the global remodeling market is expected to experience substantial growth, with projections pointing to a value of $5.46 billion by 2029.
As consumers continue to invest in improving their living spaces, the industry will thrive and provide a wide range of opportunities for businesses, investors, and homeowners alike. That said, let’s take a closer look at the fundamentals of the stocks mentioned above.
Front Door, Inc. (FTDR)
FTDR offers customizable home service plans that help customers protect and maintain their homes and assets against costly and unplanned home system and appliance failures. The company operates under the brand names American Home Shield, HSA, OneGuard, and Landmark Home Warranty.
On May 10, FTDR revealed that its app, Frontdoor, which provides comprehensive home maintenance and repair services, had more than 225,000 downloads in just four weeks since its April 11 launch. This reflects the company’s strong demand from homeowners.
On April 26, FTDR announced a major partnership called “Feature Plus Level Partnership” with Home & Garden Television (HGTV) for the highly anticipated 2023 Smart Home Sweepstakes. As part of this partnership, promotional content expanded the newly introduced Frontdoor app on HGTV’s digital platforms.
FTDR revenue increased 4.6% year over year to $367 million in the first quarter (ended March 31, 2023), while gross profit increased 18.1% year over year to $170 million. The company has changed net income and adjusted earnings per share were $23 million and $0.29, up 666.7% and 625%, respectively, over the same period last year. Also, adjusted EBITDA increased 116% from its year-ago value to $54 million.
Streets expect FTDR revenue and earnings per share for the second quarter (ending June 30, 2023) to grow 5.3% and 4.8% year over year to $512.73 million and $0.56, respectively. Plus, it beat revenue estimates in each of the next four quarters, which is impressive.
The stock has gained 50.4% year-to-date to close out the last trading session at $31.28.
FTDRs POWR ratings reflect this robust outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings rate stocks on 118 different factors, each with its own weighting.
It has an A grade for quality and a B grade for growth. In the 56-stock B-rated Home Improvement & Goods industry, it ranks #14. To see additional FTDR POWR ratings for value, momentum, stability, and sentiment, click here.
steel case inc. (SCS)
SCS offers a comprehensive portfolio of furniture and architectural products designed to help customers create workplaces. The furniture portfolio includes furniture systems, seating, storage units, fixed and height-adjustable desks, benches, etc. In addition, the interior architectural products include full and half-height walls and architectural pods.
On April 14, the company paid a quarterly dividend of $0.10 per share to its shareholders. SCS’ annual dividend of $0.40 translates to a yield of 5.63% at prevailing prices, while the average four-year dividend yield is 4.29%.
In the month of February, SCS was named for the 17th year in the FORTUNE 2023 World’s Most Admired Companies list and fourth in the Home Equipment and Furnishings category. This recognition demonstrates the company’s consistently strong performance within the industry.
For the fourth quarter of fiscal 2023, which ended February 24, 2023, SCS revenue increased 6.5% year over year to $801.70 million, while gross profit increased 21.8% year over year ago to $239.20 million.
The company’s net income was $15.70 million compared to a net loss of $2.20 million in the same period last year, while adjusted earnings per share increased significantly year over year to $0.19. Also, adjusted operating income improved by 532.8% from a year ago value to $38.60 million.
The consensus earnings per share estimate of $0.67 for fiscal year 2024 (ending February 28, 2024) represents a 19.6% year-over-year improvement. The consensus revenue estimate of $3.24 billion for the current year represents a marginal increase from the same period last year. The company has an excellent history of earnings surprises, as it beat consensus earnings per share estimates in each of the next four quarters.
The stock has been up slightly since the start of the year to finish the last trading session at $7.11.
It’s no surprise that SCS has an overall rating of B, which equates to Buy in our own rating system. It has a B grade for growth and value. Out of 56 stocks in the same industry, it ranks number 16.
In addition to the POWR ratings we mentioned above, we also have SCS ratings for momentum, stability, sentiment, and quality. Get all SCS ratings here.
Haverty Furniture Companies, Inc. (HVT)
HVT is a specialty retailer of home furnishings and accessories in the United States. The company offers furniture items under the brand name Havertys. In addition, it also offers custom upholstery products and eclectic looks; mattress product lines under the names Tempur-Pedic, Serta, Sealy, Stearns, and Foster, as well as the private label name Skye.
On May 19, the company announced that its board of directors approved a 7.1% increase in the quarterly dividend for its common stock from $0.28 per share to $0.30 per share. The dividend will be paid to its shareholders on June 21, 2023.
The company’s annual dividend of $1.20 translates into a yield of 4.65% at current prices, while the average four-year dividend yield is 8.48%. Dividend payments have increased at CAGRs of 12.8% and 13.3% respectively over the past three and five years. It also has a record of 10 years of consecutive dividend growth.
In the first quarter (ended March 31, 2023), HVT’s net sales were $224.75 million, while its gross profit margin was 59.1%, compared to 59.0% in the same period last year. During the same period, the company’s net income and earnings per share were $12.37 million and $0.74, respectively.
In addition, total current liabilities were $138.57 million, a decrease of 10.3% compared to $154.43 million as of December 31, 2022.
For fiscal year 2024, HVT’s revenue and earnings per share are expected to grow 6.3% and 2.3% year over year to $981.73 million and $4.12, respectively. Earnings per share are expected to improve at 13.1% per annum over the next five years. In addition, it beat revenue and EPS estimates in three of the four quarters, which is promising.
Shares of HVT have been up marginally over the past five days to close out the latest trading session at $25.81.
HVT’s strong fundamentals are reflected in the POWR ratings. It has an overall rating of B, which is equivalent to buying in our own rating system.
It has an A grade for quality and a B grade for value. Within the same industry with a B rating, it is number 20. click here to see HVT’s other ratings for growth, momentum, stability and sentiment.
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FTDR shares traded Tuesday morning at $31.48 per share, up $0.20 (+0.64%). Year-to-date, FTDR is up 51.35%, versus a 10.43% increase in the benchmark S&P 500 index over the same period.
About the author: Shweta Kumari
Shweta’s keen 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 informed investment decisions. More…