As people consistently prioritize allocating resources to improve their homes, the demand for home renovations and remodeling services is expected to remain steady this year and beyond. Moreover, the increasing adoption of smart home technologies and DIY solutions is further enhancing the industry prospects.
Given the backdrop, it could be an opportune time to load up the shares of three fundamentally sound home improvement companies, Hooker Furnishings Corporation (HOFT), Snap-on Incorporated (SNA), and Tile Shop Holdings, Inc. (TTSH), for potential gains this year.
The home improvement industry has witnessed significant growth in recent years, with a notable upswing during the pandemic. Despite the recent challenges posed by high inflation, the home improvement market is expected to have generated substantial revenues in 2023.
Furthermore, the home improvement sector continues to experience annual growth on a global scale. In the United States, the market is forecasted to exceed an impressive value of $600 billion by the year 2025. Meanwhile, the global home improvement market is forecasted to surpass the trillion-dollar mark by 2027, demonstrating a CAGR of over 4% from 2020 to 2027.
On the other hand, despite a recent drop in mortgage rates, it persistently hovers above 6%, causing many consumers to approach the housing market with hesitancy. Consequently, this year is shaping up to be dedicated to home improvement, with homeowners favoring renovations as a more sensible choice.
Additionally, the heightened embrace of advanced smart home technologies is anticipated to further stimulate the demand for home improvement services. The global smart home market is expected to elevate from an estimated $101.70 billion in 2023 to $163.70 billion by 2028, growing at an impressive CAGR of 10% from 2023 to 2028.
The widespread acceptance of home automation solutions is propelled by their convenience, energy efficiency, and cost-saving benefits.
On top of it, the rising popularity of Do-It-Yourself (DIY) home improvement solutions, fueled by their cost-saving benefits in terms of labor, is expected to drive the industry’s growth. The global DIY home improvement market is anticipated to hit $128.76 billion by 2029, exhibiting a 3.9% CAGR from 2023 to 2029.
In light of such encouraging projections and trends, let’s now examine the fundamentals of the featured Home Improvement & Goods stocks, beginning with the third choice:
Stock #3: Hooker Furnishings Corporation (HOFT)
HOFT designs, manufactures, imports, and markets residential household, hospitality, and contract furniture. It operates under three segments: Hooker Branded; Home Meridian; and Domestic Upholstery.
On December 29, 2023, HOFT paid its shareholders a quarterly dividend of $0.23 per share, reflecting a 4.5% increase over the previous quarterly dividend. The company’s annual dividend of $0.92 translates to a 3.90% yield on the prevailing prices, while its four-year average dividend yield is 3.57%.
Its dividend payouts have grown at CAGRs of 10.5% and 9.3% over the past three and five years, respectively. Also, HOFT has a record of eight years of consecutive dividend growth.
HOFT’s trailing-12-month levered FCF margin of 18.16% is 235% higher than the 5.42% industry average. Likewise, its trailing-12-month asset turnover ratio of 1.24x is 24.6% higher than the industry average of 0.99x. Furthermore, the stock’s trailing-12-month cash per share of $3.79 is 63.4% higher than the industry average of $2.32.
For the fiscal third quarter, which ended on October 29, 2023, HOFT’s net sales amounted to $116.83 million, while its gross profit increased 5.3% from the year-ago value to $33.71 million.
The company’s net income and EPS came in at $7.04 million and $0.65, representing increases of 45.4% and 54.8% from the prior-year quarter, respectively. In addition, its operating income improved 36.6% from the year-ago value to $8.77 million.
Analysts predict HOFT’s EPS for the fiscal fourth quarter (ending January 2024) to increase significantly year-over-year to $0.60, while its revenue for the same period is expected to be $123.24 million.
Over the past three months, HOFT’s shares have surged 34.2% to close the last trading session at $23.80.
HOFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, 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 a B grade for Growth and Momentum. In the B-rated 57 stock Home Improvement & Goods industry, it is ranked #16. Click here to see HOFT’s ratings for Value, Stability, Sentiment, and Quality.
Stock #2: Snap-on Incorporated (SNA)
SNA manufactures and markets tools, equipment, diagnostics, and repair information and systems solutions for professional users worldwide. It operates through Commercial & Industrial Group; Snap-on Tools Group; Repair Systems & Information Group; and Financial Services segments.
On December 11, 2023, SNA paid its shareholders a quarterly dividend of $1.86 per share, representing a 14.8% increase over the previous quarterly dividend.
The company’s annual dividend of $7.44 translates to a 2.59% yield on the prevailing prices, while its four-year average dividend yield is 2.53%. Its dividend payouts have grown at a CAGR of 14.6% over the past three years. Also, SNA has a record of 14 years of consecutive dividend growth.
On November 7, 2023, SNA disclosed its acquisition of Mountz, Inc. for a cash transaction valued at around $40 million. Mountz is a key player in the design, production, and promotion of highly accurate torque tools, encompassing measurement, calibration, and documentation products.
This strategic move by SNA expands its torque offerings, benefiting industries such as aerospace, transportation, and advanced manufacturing.
SNA’s trailing-12-month levered FCF margin of 13.74% is 128.6% higher than the 6.01% industry average. Likewise, its trailing-12-month net income margin of 19.66% is 220.3% higher than the industry average of 6.14%. Furthermore, the stock’s trailing-12-month cash per share of $18.17 is 751.4% higher than the industry average of $2.13.
In the fiscal third quarter, which ended on September 30, 2023, SNA’s net sales increased 5.2% year-over-year to $1.16 billion, while its gross profit rose 8.6% from the year-ago value to $578.20 million.
The company’s attributable net earnings grew 8.6% and 8.9% from the prior-year quarter to $243.10 million and $4.51 per share, respectively. Additionally, its operating earnings improved 8.5% year-over-year to $314.60 million.
The consensus revenue estimate of $1.20 billion for the fiscal fourth quarter (ended December 2023) represents a 4% year-over-year improvement. Meanwhile, the consensus EPS estimate of $4.66 for the same quarter reflects a 5.5% year-over-year rise.
Moreover, the company has an excellent surprise history, surpassing the revenue and EPS estimates in each of the trailing four quarters.
SNA’s shares have soared 14.3% over the past three months to close the last trading session at $288.93.
SNA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Quality and a B for Stability. Within the same B-rated industry, it is ranked #10. Click here to see the other ratings of SNA for Growth, Value, Momentum, and Sentiment.
Stock #1: Tile Shop Holdings, Inc. (TTSH)
TTSH operates as a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories in the United States. It offers natural stone products, such as marble, travertine; and made products, including ceramic, porcelain, glass, cement, etc.
TTSH’s trailing-12-month levered FCF margin of 7.94% is 46.4% higher than the 5.42% industry average. Likewise, its trailing-12-month gross profit margin of 64.41% is 83.1% higher than the industry average of 35.18%. Furthermore, the stock’s trailing-12-month CAPEX/Sales of 3.88% is 26.7% higher than the industry average of 3.06%.
For the fiscal third quarter, which ended on September 30, 2023, TTSH’s net sales amounted to $92.11 million, while its net income and net income per share stood at $1.84 million and $0.04, respectively. During the same quarter, the company’s income from operations and adjusted EBITDA came in at $2.83 million and $8.26 million, respectively.
Street expects TTSH’s revenue for the fiscal fourth quarter (ended December 2023) to increase 2.4% year-over-year to $89.57 million, while its EPS for the same quarter is expected to be $0.01. Furthermore, its EPS is projected to improve by 20% annually over the next five years.
The stock has surged 33.8% over the past three months to close the last trading session at $7.05.
It’s no surprise that TTSH has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Quality. Out of 57 stocks in the same industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have TTSH’s ratings for Growth, Value, Momentum, Stability, and Sentiment. Get all TTSH ratings here.
What To Do Next?
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SNA shares were trading at $288.39 per share on Tuesday morning, down $0.54 (-0.19%). Year-to-date, SNA has declined -0.16%, versus a 1.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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