The COVID-19 pandemic has significantly changed living preferences. Remote lifestyles led to growth in remodeling projects. Approximately 76% of American homeowners did a home improvement project in 2020. Moreover, the U.S. remodeling industry registered massive growth last year, earning nearly $1.1 billion in revenue.
This trend is expected to continue in the upcoming years. The increasing residential renovation projects driven by rising per capita income should drive the industry’s growth. The remodeling market from residential applications registered nearly $3,000 billion in revenue in 2022.
The remodeling market size exceeded $4.07 trillion in 2022 and is expected to cross $6 trillion by 2032, growing at a CAGR of 3.5%. Increasing investments to upgrade aging infrastructure, improving living standards, and growing transition toward energy-efficient living spaces have driven a change in consumer preferences and buying habits, thereby bolstering the industry’s demand.
Moreover, the October inflation report came in lower than expected, indicating that inflationary pressures are easing. This could also boost the discretionary expenses of households and businesses.
Therefore, fundamentally strong home improvement stocks Lowe’s Companies (LOW), ADT Inc. (ADT), and HNI Corporation (HNI) might be ideal additions to one’s portfolio.
Lowe’s Companies (LOW)
LOW operates as a home improvement retailer internationally. The company offers construction, maintenance, home improvement, remodeling, and decorating products.
It sells its national merchandise and private brand products to homeowners, renters, and professional customers. The company operates more than 1,969 home improvement and hardware stores.
On November 17, LOW announced its partnership with Miele, a German premium appliance manufacturer, to expand its assortment of premium appliances through a new exclusive home center. LOW’s is expected to offer a variety of Miele dishwashers and laundry appliances in 149 Lowe’s stores and online.
Bill Boltz, LOW’s executive vice president of merchandising, said, “Our partnership with Miele reaffirms Lowe’s commitment to ensuring that we have new, high-quality offerings across all price points.”
On November 11, LOW declared a quarterly dividend of $1.05 per share, payable to shareholders on February 8, 2023. It pays an annual dividend of $4.20, which yields 1.98% on prevailing prices. The company’s dividend payouts have increased at a 21.6% CAGR over the past three years and a 19.5% CAGR over the past five years.
Moreover, the company has a record of 59 years of consecutive dividend growth.
In the fiscal 2022 third quarter ended October 28, 2022, LOW’s net sales increased 2.4% year-over-year to $23.48 billion, while its gross margin grew 3% from the year-ago value to $7.82 billion. As of October 28, 2022, the company’s current assets came in at $24.99 billion, compared to $24.85 billion as of October 29, 2021.
Analysts expect LOW’s EPS to increase 26.3% year-over-year to $2.25 in the fiscal fourth quarter ending January 2023. The company revenue is expected to come in at $22.75 billion, indicating a 6.6% year-over-year growth. Also, for the current fiscal year, analysts expect its EPS and revenue to increase 14.4% and 1.2% from the previous year to $13.77 and $97.39 billion, respectively.
The stock has gained 9.2% over the past month to close the last trading session at $215.48.
LOW’s POWR Ratings reflect this promising outlook. The stock’s overall B rating translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
LOW has a B grade for Sentiment and Quality. It is ranked #13 out of 60 stocks in the Home Improvement & Goods industry.
Click here to access additional POWR Ratings of LOW for Stability, Value, Growth, and Momentum.
ADT Inc. (ADT)
ADT provides security, interactive, and innovative home solutions to serve residential, small business, and commercial customers in the United States. Its segments include Consumer and Small Business (CSB); Commercial; and ADT Solar business (Solar). The company operates through a network of nearly 250 sales and service offices and three regional distribution centers.
On September 6, ADT announced its partnership with State Farm. State Farm will make a $1.2 billion equity investment in ADT, resulting in State Farm owning approximately 15% of ADT. Additionally, ADT plans to partner with State Farm and build upon its existing relationship with Alphabet (GOOG) (GOOGL), with the latter agreeing to commit an additional $150 million to support this opportunity.
In August, ADT announced its partnership with Uber (UBER) to integrate ADT mobile safety solutions into the Uber app for riders and drivers in the United States to get live help, via phone or text, from ADT professional monitoring agents. This marks yet another addition to ADT’s growing Clientele that utilizes Safe by ADT to power their app-based mobile safety features.
For the third quarter of the fiscal year 2022 ended September 30, ADT’s total revenue increased 21.8% year-over-year to $1.60 billion, while the company’s adjusted EBITDA grew 11.9% year-over-year to $620 million. The company reported an adjusted net income of $83 million or $0.10 per share, compared to an adjusted net loss of $54 million or $0.07 per share in the previous-year quarter.
The company pays an annual dividend of $0.14, which yields 1.50% at the current price level. This compares to its 4-year average dividend yield of 4.44%.
Analysts expect ADT’s revenue for the fiscal year ending December 2022 to increase 19.9% year-over-year to $6.36 billion. The company’s EPS for the current year is expected to come in at $0.51, compared to a loss of $0.25 per share during the previous year. Moreover, ADT’s EPS is expected to grow by 3.5% per annum over the next five years.
Shares of ADT have gained 13.5% over the past month and 20% over the past year to close the last trading session at $9.68.
ADT’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It has an A grade for Growth and a B grade for Stability.
ADT is ranked #6 of 60 stocks in the same industry. Click here to see the additional ratings of ADT for Value, Momentum, Sentiment, and Quality.
HNI Corporation (HNI)
HNI manufactures and sells workplace furnishings and residential building products, mainly in the United States and Canada. The company operates through two segments: Workplace Furnishings and Residential Building Products.
On November 9, HNI’s Board of Directors paid a quarterly dividend of 32 cents on December 1, 2022, to shareholders of record at the close of business on November 21, 2022. It pays a $1.28 per share dividend annually, which translates to a 4.41% yield on the current share price. Its four-year average dividend yield is 3.50%.
Moreover, the company has raised its dividends for 12 consecutive years. Its dividend payouts have grown at a CAGR of 1.6% over the past three years and 2.4% over the past five years.
On October 24, Jeff Lorenger, HNI’s Chairman, President, and CEO, said, “In Residential Building Products, our category-leading position and favorable housing demographics further reinforce our bullishness around future revenue, earnings, and cash flow growth.”
For the fiscal 2022 third quarter ended October 1, 2022, HNI’s net sales increased 2.1% year-over-year to $598.80 million. Its gross profit grew 7.2% from the prior-year quarter to $209.50 million. Its operating income was $81.90 million, up 212.6% year-over-year.
Furthermore, the company’s net income rose 228.7% from the year-ago value to $63.10 million, while net income attributable to HNI per common share came in at $1.51, up 251.2% year-over-year.
The consensus EPS estimate of $2.04 for the current fiscal year (ending December 2022) indicates a 24.9% year-over-year improvement. Likewise, the consensus revenue estimate for the same year of $2.35 billion reflects a rise of 7.7% from the prior year.
Also, the company has surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained marginally over the past month to close its last trading session at $29.34.
HNI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Stability, Value, Stability, Sentiment, and Growth. In the 60-stock Home Improvement & Goods industry, it is ranked #1.
Click here to see the additional POWR Ratings for HNI (Momentum).
LOW shares fell $3.53 (-1.64%) in premarket trading Friday. Year-to-date, LOW has declined -16.28%, versus a -14.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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