Despite various challenges, the home improvement industry’s growth prospects look promising due to factors such as urbanization, rising disposable incomes, and changing consumer preferences, especially toward renovation and aesthetic enhancements.
Amid this backdrop, it could be wise to buy fundamentally strong home improvement stocks: Mohawk Industries, Inc. (MHK), Lifetime Brands, Inc. (LCUT), Alarm.com Holdings, Inc. (ALRM), and Hamilton Beach Brands Holding Company (HBB) given their solid growth prospects.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the home improvement industry is well-positioned for growth.
The housing industry has faced challenges of higher mortgage rates, record home prices, and lingering uncertainty over the supply of housing inventory. Total (Existing and new) home sales for 2023 were 4.8 million, the lowest since 2011. Moreover, U.S. home prices hit an all-time high in December.
However, the housing industry looks poised for a recovery, as mortgage rates have been falling since October last year. Freddie Mac’s Primary Mortgage Market Survey (PMMS) results showed that as of March 14, the 30-year fixed-rate mortgage (FRM) averaged 6.74% and the 15-year FRM averaged 6.16%.
Moreover, U.S. single-family homebuilding rebounded in February by surging 11.6% to a seasonally adjusted annual rate of 1.129 million units, hitting the highest level in nearly two years. A survey from the National Association of Home Builders showed that confidence among single-family homebuilders rose to an eight-month high in March.
Lower mortgage rates and an improved pricing environment amid a continued existing home inventory shortage led to builder confidence rising to 51 this month from 48 in February. NAHB Chairman Carl Harris said, “Buyer demand remains brisk, and we expect more consumers to jump off the sidelines and into the marketplace if mortgage rates continue to fall later this year.”
Oxford Economics’ lead economist Nancy Vanden Houten believes that the boost in builders’ sentiment may lead to an increase in single-family home starts throughout 2024.
She said, “More than half of home builders continue to offer some kind of incentive to encourage sales. Those incentives, along with a shortage of existing homes for sale and an increase in single-family housing starts, should support new home sales in the months ahead.”
A decline in mortgage rates, a rise in housing starts and building permits, and an increase in existing home sales are likely to contribute to increased spending in the home improvement sector, as home remodeling and repair and new home construction drive demand for various home improvement products.
The global home improvement market is predicted to grow at a CAGR of 6.7% to reach $575.50 billion by 2030.
With individuals prioritizing improving their current living spaces over entering the housing market, the U.S. residential remodeling market size is projected to grow at a CAGR of 4.6% to reach $716.18 billion by 2030. Moreover, the home improvement industry is positively impacted by the rise of smart appliances, particularly in developed economies fueled by IoT technology.
The household appliances market generated $0.67 trillion in revenue in 2024, and its expected annual growth rate between 2024 and 2028 is 4.86%.
Furthermore, the global home improvement market is thriving due to increased demand for smart homes and heightened security needs driven by advancements in IoT and AI technologies. The global smart home market is expected to grow at a CAGR of 27.1% to reach $537.01 billion by 2030.
Considering these conducive trends, let’s analyze the fundamental aspects of the four Home Improvement & Goods picks, beginning with the fourth choice.
Stock #4: Mohawk Industries, Inc. (MHK)
MHK designs, manufactures, sources, distributes, and markets flooring products for residential and commercial remodeling and new construction internationally. It operates through three segments: Global Ceramic, Flooring North America, and Flooring Rest of the World.
MHK’s revenue grew at a CAGR of 5.2% over the past three years. Its EBIT grew at a CAGR of 2.1% over the past three years. Moreover, its Tang Book Value grew at a CAGR of 4.3% during the same period.
In terms of the trailing-12-month EBITDA margin, MHK’s 12.97% is 19.6% higher than the 10.84% industry average. Likewise, the stock’s 6.06% trailing-12-month levered FCF margin is 10.7% higher than the 5.48% industry average. Also, the stock’s 5.50% trailing-12-month Capex / Sales is 80.5% higher than the 3.05% industry average.
For the fiscal fourth quarter that ended December 31, 2023, MHK’s adjusted net sales came in at $2.54 billion. Its adjusted operating income rose 47.2% from the year-ago value to $175.42 million. The company’s adjusted net earnings and adjusted EPS attributable to MHK rose 48.5% each over the prior-year quarter to $125.26 million and $1.96, respectively.
Analysts expect MHK’s EPS for the quarter ending September 30, 2024, to increase 4.7% year-over-year to $2.85, and its revenue for the same quarter is expected to increase marginally year-over-year to $2.78 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 31.8% to close the last trading session at $120.89.
MHK’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating 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 Growth and Value. It is ranked #16 out of 57 stocks in the B-rated Home Improvement & Goods industry. In total, we rate MHK on eight different levels. Beyond what we stated above, we also have given MHK grades for Stability, Sentiment, and Quality. Get all the MHK’s ratings here.
Stock #3: Lifetime Brands, Inc. (LCUT)
LCUT designs, sources, and sells branded kitchenware, tableware, and other home products worldwide. The company offers a range of kitchenware, including tools, cutlery, scales, thermometers, cutting boards, shears, cookware, pantryware, spice racks, and bakeware.
LCUT’s levered FCF grew at a CAGR of 16% over the past three years.
In terms of the trailing-12-month levered FCF margin, LCUT’s 9.24% is 68.7% higher than the 5.48% industry average. Furthermore, the stock’s 37.08% trailing-12-month gross profit margin is 3.8% higher than the 35.71% industry average.
LCUT’s net sales for the fourth quarter ended December 31, 2023, came in at $203.14 million. Its adjusted income from operations rose 6.9% from the year-ago value to $19.40 million. Additionally, the company’s adjusted net income and adjusted income per share came in at $6.33 million and $0.29, respectively.
For the quarter ending March 31, 2024, LCUT’s revenue is expected to increase 1.7% year-over-year to $147.96 million. Its EPS for the fiscal 2025 is expected to increase 35.4% year-over-year to $0.87. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 86.4% to close the last trading session at $9.04.
LCUT’s POWR Ratings reflect a favorable outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, and Quality. It is ranked #6 in the same industry. To see LCUT’s Stability and Sentiment ratings, click here.
Stock #2: Alarm.com Holdings, Inc. (ALRM)
ALRM provides various Internet of Things (IoT) and solutions for residential, multi-family, small business, and enterprise commercial markets internationally. The company operates through two segments: Alarm.com and Other.
ALRM’s revenue grew at a CAGR of 12.6% over the past three years. Its EBITDA grew at a CAGR of 2.5% over the past three years. Moreover, its net income grew at a CAGR of 1.4% during the same period.
In terms of the trailing-12-month gross profit margin, ALRM’s 63.12% is 28.8% higher than the 49.02% industry average. Its 9.19% trailing-12-month net income margin is 258.9% higher than the 2.56% industry average. In addition, its 12.59% trailing-12-month Return on Common Equity is 314.2% higher than the 3.04% industry average.
For the fiscal fourth quarter that ended December 31, 2023, ALRM’s total revenue rose 8.7% year-over-year to $226.24 million. Its operating income increased 77.4% over the prior-year quarter to $25.68 million. Likewise, its adjusted net income and adjusted net income per share attributable to common stockholders amounted to $33.91 million and $0.62, up 18.3% and 17% year-over-year, respectively.
Street expects ALRM’s EPS and revenue for the quarter ending March 31, 2024, to increase 18.8% and 4.6% year-over-year to $0.49 and $219.45 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 46.5% to close the last trading session at $73.05.
It’s no surprise that ALRM has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It is ranked #5 in the Home Improvement & Goods industry. It has a B grade for Growth, Stability, and Sentiment. Click here to see ALRM’s ratings for Value, Momentum, and Quality.
Stock #1: Hamilton Beach Brands Holding Company (HBB)
HBB designs, markets, and distributes small electric household and specialty housewares appliances internationally. The company offers a range of products, including air fryers, blenders, coffee makers, food processors, indoor electric grills, irons, juicers, mixers, slow cookers, toasters, and toaster ovens.
On February 5, 2024, HBB announced its acquisition of HealthBeacon PLC, a medical technology firm specializing in connected devices for managing injectable medication regimens at home. The firm has operations in the UK, Europe, North America, and Australia, employs around 50 employees, and holds over 30 patents.
Gregory H. Trepp, President and CEO of HBB, predicts that the acquisition of HealthBeacon PLC will support their strategic initiative to expand in the growing home health and wellness market. By driving growth through in-home healthcare management tools and digital capabilities, HBB aims to increase shareholder value over time.
HBB’s Tang Book Value grew at a CAGR of 24.8% over the past three years. Also, its revenue grew at a CAGR of 1.2% over the past three years.
In terms of the trailing-12-month levered FCF margin, HBB’s 12.18% is 122.3% higher than the 5.48% industry average. Likewise, its 6.56% trailing-12-month Return on Total Assets is 56% higher than the 4.21% industry average. Also, its 1.62x trailing-12-month asset turnover ratio is 62.6% higher than the 0.99x industry average.
HBB’s revenue for the fourth quarter ended December 31, 2023, increased 5.3% year-over-year to $206.65 million, and its gross profit rose 62.3% year-over-year to $55.28 billion. For the same quarter, its net income rose 175.7% from the year-ago value to $19.57 million. In addition, its EPS increased 174.5% over the prior-year quarter to $1.40.
Analysts expect HBB’s revenue for fiscal 2024 to increase 3.6% year-over-year to $647.90 million. Over the past nine months, the stock has gained 130.8% to close the last trading session at $21.26.
HBB’s POWR Ratings reflect its bright prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Value and a B for Sentiment and Quality. It is ranked #3 in the same industry. To access the additional ratings of HBB for Momentum and Stability, click here.
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MHK shares were trading at $120.65 per share on Wednesday morning, down $0.24 (-0.20%). Year-to-date, MHK has gained 16.57%, versus a 8.83% 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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