The home improvement industry’s prospects look promising due to easing mortgage rates, rising disposable income, and expected interest rate cuts by the Federal Reserve. Additionally, homeowners are opting for renovations and remodeling instead of purchasing new homes, further driving the growth of the industry.
Given this backdrop, it could be wise to add fundamentally strong home improvement stocks Masonite International Corporation (DOOR), Masco Corporation (MAS), and La-Z-Boy Incorporated (LZB).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the home improvement industry is well-positioned for growth.
During the pandemic, with limited spending options and increased time spent indoors, home improvement became a top priority. The surplus cash, coupled with a surge in DIY projects, aging housing stock, and a shift to rural and suburban areas, has helped the home improvement sector maintain steady growth since then.
Existing home sales in the U.S. reached their lowest level in nearly 13 and a half years in December, but there's hope for a rebound this year due to declining mortgage rates and improving housing inventory.
Despite a recent sales dip, the housing market is poised for a turnaround. According to the Mortgage Bankers Association, mortgage applications to purchase a home rose 8% last week compared to the previous week. This is also expected to benefit the home improvement industry.
MBA economist Joel Kan said, “Mortgage rates increased slightly last week, but there continues to be an upward trend in purchase activity.”
The home improvement sector is also booming thanks to the growing interest in smart homes and heightened security needs. Advancements like the Internet of Things (IoT) and AI are shaping market trends. The global home improvement market is projected to grow at a CAGR of more than 5% to reach $423.90 billion in 2027.
Furthermore, the U.S. home decor market is projected to grow at a CAGR of 4.1% to reach $180.39 billion by 2030, driven by a growing demand for sustainable products and the incorporation of technology for personalized and convenient designs, reflecting a trend toward wellness and ecological consciousness.
Considering these conducive trends, let’s analyze the fundamentals of the three Home Improvement & Goods picks, beginning with the third choice.
Stock #3: Masonite International Corporation (DOOR)
DOOR designs, manufactures, markets, and distributes interior and exterior doors for the new construction and repair, renovation, and remodeling sectors of the residential and non-residential building construction markets worldwide.
In terms of the trailing-12-month levered FCF margin, DOOR’s 7.48% is 24.4% higher than the industry average of 6.01%. Its 13.76% trailing-12-month EBITDA margin is 0.7% higher than the industry average of 13.66%. Likewise, its 20.81% trailing-12-month Return on Common Equity is 68.5% higher than the 12.35% industry average.
DOOR’s net sales for the third quarter ended October 1, 2023, came in at $702 million. Its income from operations came in at $65.17 million. The company’s adjusted net income attributable to DOOR and adjusted EPS stood at $45.47 million and $2.04, respectively. Also, its adjusted EBITDA came in at $107 million.
Analysts expect DOOR’s revenue for the quarter ending June 30, 2024, to increase 1.9% year-over-year to $755.80 million. Its EPS for the quarter ending March 31, 2024, is expected to increase 0.3% year-over-year to $1.89. Over the past three months, the stock has gained 17% to close the last trading session at $91.44.
DOOR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a 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 Momentum and a B for Value. It is ranked #21 out of 57 stocks in the B-rated Home Improvement & Goods industry. To access DOOR’s grades for Growth, Stability, Sentiment, and Quality, click here.
Stock #2: La-Z-Boy Incorporated (LZB)
LZB manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and case goods furniture products worldwide. It operates through Wholesale, Retail, Corporate, and other segments.
In terms of the trailing-12-month gross profit margin, LZB’s 45.14% is 28.1% higher than the industry average of 35.24%. Its 5.68% trailing-12-month net income margin is 23.9% higher than the industry average of 4.58%. Likewise, its 6.42% trailing-12-month Return on Total Assets is 61.1% higher than the 3.99% industry average.
LZB’s sales for the second quarter, which ended on October 28, 2023, came in at $511.44 million. The company's non-GAAP operating income came in at $40.51 million. Moreover, its non-GAAP net income attributable to LZB and EPS stood at $32.27 million and $0.74, respectively.
Street expects LZB’s EPS and revenue for the quarter ending July 31, 2024, to increase 3.2% and 2.5% year-over-year to $0.64 and $493.54 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 25.3% to close the last trading session at $36.08.
It’s no surprise that LZB has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Momentum and Quality. Within the Home Improvement & Goods industry, it is ranked #19. In total, we rate LZB on eight different levels. Beyond what we stated above, we have also given LZB grades for Growth, Value, Stability, and Sentiment. Get all the LZB ratings here.
Stock #1: Masco Corporation (MAS)
MAS designs, manufactures, and distributes home improvement and building products internationally. The company operates in two segments: Plumbing Products Segment and Decorative Architectural Products Segment.
In terms of the trailing-12-month EBIT margin, MAS’ 16.63% is 70% higher than the industry average of 9.78%. Its 18.47% trailing-12-month EBITDA margin is 35.2% higher than the industry average of 13.66%. Likewise, its 25.12% trailing-12-month Return on Total Capital is 256.7% higher than the 7.04% industry average.
For the third quarter that ended on September 30, 2023, MAS’ net sales came in at $1.98 billion. Its gross profit rose 7.1% year-over-year to $744 million. The company’s net income attributable to MAS increased 14.2% year-over-year to $249 million, while its attributable EPS stood at $1.10, up 13.4% over the prior-year quarter.
For the quarter ended December 31, 2023, MAS’ EPS and revenue are expected to increase 0.7% year-over-year to $0.65, and its revenue for the quarter ending June 30, 2024, is expected to increase 0.3% year-over-year to $2.13 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 38.7% to close the last trading session at $67.03.
MAS’ solid prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Quality. It is ranked #18 in the same industry. To see MAS’ Growth, Value, Momentum, Stability, and Sentiment ratings, click here.
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MAS shares were trading at $67.04 per share on Friday afternoon, down $0.14 (-0.21%). Year-to-date, MAS has gained 0.09%, versus a 2.52% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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