Technological advances, easing mortgage rates, rising disposable income and growing enthusiasm among homeowners for remodeling projects are brightening the outlook for the home improvement industry. Therefore, it may be wise to add fundamentally strong home improvement stocks, Masonite International (DOOR), Masco (MAS), and La-Z-Boy (LZB), to your portfolio. To know more….
The outlook for the home improvement industry looks promising thanks to easing mortgage rates, rising disposable income and expected interest rate cuts by the Federal Reserve. Additionally, homeowners are opting for renovations and remodels instead of purchasing new homes, further driving growth in the industry.
Given this backdrop, it might be wise to add fundamentally strong home improvement stocks, Masonite International Corporation (BRINGS), Masco Corporation (BUT) and La-Z-Boy Incorporated (LZB).
Before we dive into the fundamentals of these stocks, let’s discuss why the home improvement sector is well positioned for growth.
During the pandemic, with limited spending options and increased time spent at home, home improvement has become a top priority. The surplus cash, coupled with the rise of do-it-yourself projects, aging housing stock and a shift to rural and suburban areas, has helped the home improvement industry maintain steady growth ever since.
Sales of existing homes in the United States have reached their peak in December the lowest level in the last 13 and a half yearsBut there is hope for a recovery this year due to falling mortgage rates and improving housing inventory.
Despite the recent decline in sales, the real estate market is ready 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 DIY sector.
MBA economist Joel Kan said, “Mortgage rates rose slightly last week, but there continues to be an upward trend in purchasing activity.”
The home improvement sector is also booming thanks to the growing interest in smart homes and growing security needs. Advances such as the Internet of Things (IoT) and artificial intelligence are shaping market trends. The global home improvement market is expected to grow at a CAGR of more than 5% to reach $423.90 billion in 2027.
Additionally, the US home furnishings market is expected to grow at a CAGR of 4.1%. $180.39 billion by 2030driven by a growing demand for sustainable products and the incorporation of technology for personalized and convenient designs, reflecting a trend towards wellness and eco-consciousness.
Considering these favorable trends, let’s analyze the fundamentals of the three Home improvement and goods choices, starting from the third choice.
Action no. 3: Masonite International Corporation (BRINGS)
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 construction markets worldwide.
In terms of trailing 12 months Leveraged FCF margin, DOOR’s 7.48% is 24.4% higher than the industry average of 6.01%. Its trailing 12-month EBITDA margin of 13.76% is 0.7% higher than the industry average of 13.66%. Likewise, its trailing 12-month return on equity of 20.81% is 68.5% higher than the industry average of 12.35%.
DOOR’s net sales for the third quarter ended October 1, 2023 were $702 million. Its operating income was $65.17 million. The company’s adjusted net income attributable to DOOR and adjusted EPS were $45.47 million and $2.04, respectively. Additionally, its adjusted EBITDA came in at $107 million.
Analysts expect DOOR’s revenue for the quarter ended June 30, 2024 to increase 1.9% year-over-year to $755.80 million. Its EPS for the quarter ended March 31, 2024 is expected to increase 0.3% year-over-year to $1.89. Over the past three months, the stock gained 17% to close the latest trading session at $91.44.
DOOR’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equivalent to a Buy in our proprietary rating system. POWR Ratings evaluate stocks based on 118 different factors, each with their own weight.
It has a grade of A for Momentum and B for Value. It ranks 21st out of 57 B-rated stocks Home improvement and goods industry. To access DOOR ratings for Growth, Stability, Sentiment and Quality, Click here.
Stock no. 2: La-Z-Boy Incorporated (LZB)
LZB manufactures, markets, imports, exports, distributes and retails upholstered furniture products, accessories and briefcase furniture products worldwide. It operates across wholesale, retail, corporate and other segments.
In terms of trailing 12-month gross profit margin, LZB’s 45.14% is 28.1% higher than the industry average of 35.24%. Its trailing 12-month net profit margin of 5.68% is 23.9% higher than the industry average of 4.58%. Likewise, its trailing 12-month return on total assets of 6.42% is 61.1% higher than the industry average of 3.99%.
LZB’s sales for the second quarter, ended October 28, 2023, were $511.44 million. The company’s non-GAAP operating income was $40.51 million. Additionally, its non-GAAP net income attributable to LZB and EPS amounted to $32.27 million and $0.74, respectively.
Street expects LZB’s EPS and revenue for the quarter ended July 31, 2024 to increase 3.2% and 2.5% year over year, to $0.64 million and $493.54 million, respectively. It has topped Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock gained 25.3% to close the latest trading session at $36.08.
Not surprisingly, LZB has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Momentum and Quality. In the home improvement and goods industry, he is ranked 19th. In total, we rate LZB on eight different levels. In addition to the above, we also gave LZB grades for growth, value, stability and sentiment. Get all LZB ratings Here.
Stock no. 1: Masco Corporation (BUT)
MAS designs, produces and distributes home and building products internationally. The company operates in two segments: plumbing products segment and decorative architectural products segment.
In terms of trailing 12-month EBIT margin, MAS’s 16.63% is 70% higher than the industry average of 9.78%. Its trailing 12-month EBITDA margin of 18.47% is 35.2% higher than the industry average of 13.66%. Likewise, its trailing 12-month return on total capital of 25.12% is 256.7% higher than the industry average of 7.04%.
For the third quarter ended September 30, 2023, MAS net sales were $1.98 billion. Its gross profit increased 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 attributable EPS came in at $1.10, up 13.4% on the quarter of the previous year.
For the quarter ended December 31, 2023, MAS’s EPS and revenues are expected to increase 0.7% year over year to $0.65, while revenues for the quarter ended June 30, 2024 are expected to increase 0 .3% on an annual basis. year at 2.13 billion dollars. It beat Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock gained 38.7% to close the latest trading session at $67.03.
MAS’s strong outlook is reflected in its POWR ratings. It has an overall rating of B, equivalent to a Buy in our proprietary rating system.
It has a B grade quality. He is ranked 18th in the same industry. To view MAS’s growth, value, momentum, stability and sentiment ratings, Click here.
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On Friday afternoon, MAS shares traded at $67.04 per share, down $0.14 (-0.21%). Year to date, the MAS has gained 0.09%, compared to a 2.52% gain in the benchmark S&P 500 index over the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his career path 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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