The heightened demand for attractive domiciles with stylish interiors is helping home improvement companies thrive. The industry registered massive gains last year, and analysts expect the trend to continue. Given this backdrop, we think established home improvement companies Lowe’s (LOW) and Mohawk Industries (MHK) could be quality investments. So, let’s take a close look at these names.
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The home improvement market has generated significant growth since the onset of the COVID-19 pandemic because people have been forced to spend more time at home, which has heightened their interest in home improvement and maintenance. Furthermore, homeowners shifting preference towards modern and energy-efficient solutions is motivating them to invest in sustainable restructuring and renovation works to limit environmental impacts. With this tailwind, the home improvement services market is expected to reach $585.30 billion by 2030, registering a 6.2% CAGR from 2021 – 2030.
However, there is a shortage of affordable houses in developed regions, while property prices are surging, which is encouraging homeowners to renovate their existing homes rather than move to new homes. Furthermore, remodeling newly bought old homes before moving in is another trend that is contributing to the industry’s growth.
Given this backdrop, we think established home improvement companies Lowe’s Companies, Inc. (LOW) and Mohawk Industries, Inc. (MHK) could be solid bets now.
Lowe’s Companies, Inc. (LOW)
LOW in Mooresville, N.C., is a home improvement retailer in the United States and internationally. The company offers construction, maintenance, repair, remodeling, and decorating products.
On Nov.17, LOW announced a multi-year commitment to become the leading retail destination for aging-in-place and life-change solutions through Lowe’s Livable Home launch. The company is also expanding its service options to customers seeking assessments through Lowe’s associates and Lowe’s independent service provider network. This one-stop destination should help LOW attract more customers and enhance its position in the industry.
Also in November, LOW announced the upcoming launch of Measure Your SpaceBETA, an intuitive, end-to-end room scanning, measurement, and estimate experience in Lowe’s iOS app. The company is investing in emerging technologies like LiDAR, AI, and mixed reality to make home improvement simple and intuitive. “We call this future spatial commerce, and we’re excited to bring it to our customers,” said Seemantini Godbole, Lowe’s executive vice president and chief information officer.
LOW’s net sales increased 2.7% year-over-year to $22.92 billion in its fiscal third quarter, ended October 29. Its operating income stood at $2.79 billion, up 28.2% from the same period last year. Its net earnings grew 174% from its year-ago value to $1.90 billion. And the company’s EPS increased 200% year-over-year to $2.73.
A $20.84 billion consensus revenue estimate for its fiscal fourth quarter, ending January 2022 indicates a 2.6% improvement from the same period last year. Analysts expect the company’s EPS to be $1.69 in the current quarter, reflecting a 27.1% rise year-over-year. Furthermore, LOW surpassed the Street’s EPS estimates in each of the trailing four quarters.
LOW has gained 58.1% in price over the past year and 32.7% over the past six months to close yesterday’s trading session at $257.79.
LOW’s strong fundamentals are reflected in its POWR Ratings. LOW has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
LOW has a B grade for Sentiment and Quality. Among the 61 stocks in the B-rated Home Improvement & Goods industry, LOW is ranked #9.
Beyond what we have stated above, we have also rated LOW for Growth, Value, Momentum, and Stability. Click here to view all LOW ratings.
Mohawk Industries, Inc. (MHK)
MHK in Calhoun, Ga., designs, manufactures, sources, distributes, and markets flooring products for remodeling and new constructions of residential and commercial spaces worldwide. It operates through three segments: Global Ceramic; Flooring North America (Flooring NA), and Flooring Rest of the World (Flooring ROW).
The company signed The Climate Pledge, a sustainability-driven effort, and agreed to incorporate climate-sensitive strategies, neutralize remaining emissions with permanent and socially beneficial offsets, achieve net-zero annual carbon emissions by 2040, and implement decarbonization strategies.
MHK’s net sales increased 9.4% year-over-year to $2.82 billion in its fiscal third quarter, ended Oct. 2. Its operating income grew 37% from its year-ago value to $359.97 million. Its adjusted net earnings came in at $272.05 million, indicating an increase of 16.8% from the same period last year. And the company’s adjusted EPS increased 21.2% year-over-year to $3.95.
Analysts expect MHK’s revenues to increase 17% year-over-year to $11.17 billion in its fiscal year 2021. The $14.77 consensus EPS estimate for the year indicates a 67.3% rise year-over-year. The company has an impressive earnings surprise history; it has beaten the consensus EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 26.2% in price to close yesterday’s trading session at $180.47.
It is no surprise that MHK has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. MHK also has a B grade for Value, Momentum, and Quality. It is ranked #6 in the Home Improvement & Goods industry. Click here to view additional MHK ratings for Growth, Sentiment, and Stability.
LOW shares were trading at $252.16 per share on Friday morning, down $5.63 (-2.18%). Year-to-date, LOW has declined -2.45%, versus a -2.04% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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