Despite a slow 2023, the home improvement market shows promise, with rising consumer confidence and stabilizing inflation expected to boost spending. Analysts forecast growth in both professional and consumer markets, driven by trends like AI, smart design tools, and increased appliance needs. These factors create lucrative investment opportunities.
Given this backdrop, it could be wise to consider investing in fundamentally strong home improvement stocks such as MillerKnoll, Inc. (MLKN) and Acuity Brands, Inc. (AYI).
The home improvement market is expected to grow in the latter half of 2024 and in 2025 due to factors such as urbanization, rising disposable incomes, and changing consumer preferences, particularly for renovation and aesthetic enhancements. The global market is projected to reach around $490.13 billion by 2030, with a CAGR of approximately 4.7%.
Although remodeling activity has decreased since the pandemic peak, spending per project has risen. Longer homeowner tenures, the need to maintain aging homes, increased demand for smart building management, and heightened security demands drive this trend. The U.S. residential remodeling market is expected to grow from $538.10 million this year to $754.75 million by 2032, with a CAGR of 4.3%.
Considering these conducive trends, let’s analyze the fundamental aspects of the two Home Improvement & Goods picks, beginning with the second choice.
Stock #2: MillerKnoll, Inc. (MLKN)
MLKN researches, designs, manufactures, and distributes interior furnishings worldwide. It operates through three segments: Americas Contract, International Contract & Specialty, and Global Retail. The company also provides seating products, furniture systems, and other freestanding furniture elements.
In terms of the trailing-12-month gross profit margin, MLKN’s 39.12% is 24.9% higher than the 31.33% industry average. Likewise, the stock’s 11.36% trailing-12-month levered FCF margin is 73.3% higher than the 6.55% industry average. Also, the stock’s 0.87x trailing-12-month asset turnover ratio is 12.1% higher than the 0.78x industry average.
MLKN reported net sales of $889.90 million for the fourth quarter ended June 1, 2024. The company’s adjusted EBITDA was $104.10 million, up 15.9% year-over-year. Its net earnings attributable to MLKN were $9.90 million, compared to a net loss of $0.10 million in the year-ago quarter. Additionally, its adjusted EPS stood at $0.67, representing an increase of 63.4% from the previous year’s quarter.
Analysts expect MLKN’s EPS for the quarter ending August 31, 2024, to increase 8.8% year-over-year to $0.40, and its revenue for the quarter ending February 28, 2025, is expected to increase 2.6% year-over-year to $895.10 million. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 51.9% to close the last trading session at $30.19.
MLKN’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Value, Momentum, and Quality. It is ranked #6 out of 59 stocks in the Home Improvement & Goods industry. Beyond what we stated above, we also have given MLKN grades for Stability and Sentiment. Get all the MLKN’s ratings here.
Stock #1: Acuity Brands, Inc. (AYI)
AYI provides lighting, lighting controls, building management systems, and location-aware applications internationally. The company operates in two segments: Acuity Brands Lighting and Lighting Controls (ABL), and the Intelligent Spaces Group (ISG).
On June 26, 2024, AYI declared a quarterly dividend of 15 cents per share, payable on August 1, 2024, to shareholders of record on July 18, 2024.
In terms of the trailing-12-month levered FCF margin, AYI’s 11.60% is 76.9% higher than the 6.55% industry average. Similarly, the stock’s 10.12% trailing-12-month net income margin is 66% higher than the 6.10% industry average. Also, the stock’s 10.61% trailing-12-month Return on Total Assets is 118.8% higher than the 4.85% industry average.
During the third quarter that ended May 31, 2024, AYI’s net sales came in at $968.10 million. The company’s adjusted operating profit rose 2.6% from the year-ago value to $167.10 million.
For the same period, its adjusted net income and EPS stood at $130.70 million and $4.15 up 8.8% and 10.7% year-over-year growth, respectively. Also, the company’s adjusted EBITDA grew 2.5% from the previous year’s quarter to $180 million.
For the quarter ending August 31, 2024, AYI’s revenue is expected to increase marginally year-over-year to $1.01 billion. Its EPS for the same quarter is expected to increase 5.6% year-over-year to $4.19. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 47.5% to close the last trading session at $239.38.
AYI’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 an A grade for Quality and a B for Growth and Value. It is ranked #4 in the Home Improvement & Goods industry. To see AYI’s Momentum, Stability, and Sentiment ratings, click here.
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AYI shares were trading at $230.39 per share on Friday afternoon, down $8.99 (-3.76%). Year-to-date, AYI has gained 12.68%, versus a 12.58% 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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