Despite multi-decade high inflation and recession fears, home spending was higher than in pre-pandemic years as people returned to more normal home spending patterns. Angi’s ‘State of Home Spending’ report stated that an average of $12,904 was spent on home improvement, home maintenance, and emergency repairs in 2022 across an average of 12.5 projects.
With a slight ease in inflation and the holiday season being around the corner, the industry is likely to benefit from the increased consumer spending. Moreover, adopting smart home technology, hybrid lifestyles, and rapid urbanization will likely bolster the industry’s growth prospects.
According to a report by Allied Market Research, the home improvement services market is expected to reach $585.30 billion by 2030, growing at a CAGR of 6.2%.
However, shares of popular home-improvement retailer Bed Bath & Beyond Inc. (BBBY) slumped this week due to the company’s latest restructuring efforts with its debt exchange offer. The stock has lost 78.9% year-to-date to close the last trading session at $3.08. The company has been struggling with declining sales and weak store traffic. Moreover, analysts are bearish on the company’s prospects this holiday season.
Given the backdrop, we believe fundamentally strong home improvement stocks Lowe’s Companies, Inc. (LOW), Acuity Brands, Inc. (AYI), and Bassett Furniture Industries, Incorporated (BSET) might be better buys than BBBY.
Lowe’s Companies, Inc. (LOW)
LOW is a home improvement retailer operating internationally. The company offers a line of construction, maintenance, repair, remodeling, and decorating products. It provides home improvement products and offers installation services.
On December 7, 2022, LOW’s CEO Marvin R. Ellison said, “We are building on our momentum with the next chapter of our Total Home strategy, designed to enhance our omnichannel capabilities and position Lowe’s as a one-stop shop for DIY and Pro customers to get everything they need across all of their projects.” The company outlines its long-term financial targets to fuel growth and enhance returns.
In addition, backed by its continued momentum and strong cash generation capabilities, the board of directors authorized a new $15 billion share repurchase program.
In the fiscal 2022 third quarter ended October 28, LOW’s net sales increased 2.4% year-over-year to $23.48 billion. Its gross margin grew 3% from the prior-year quarter to $7.82 billion. The company’s net earnings and adjusted EPS came in at $154 million and $3.27, respectively.
The consensus EPS estimate of $2.24 for the fourth quarter (ending January 31, 2023) indicates a 25.9% year-over-year improvement. The consensus revenue estimate for the current quarter of $22.77 billion reflects an increase of 6.7% from the prior year. It has surpassed the EPS estimate in three of the trailing four quarters.
Over the past month, the stock has gained 8.1% to close the last trading session at $201.77.
LOW’s POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates 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 Sentiment and Quality. In the 60-stock Home Improvement & Goods industry, it is ranked #13. Click here to see the other ratings of LOW for Growth, Value, Momentum, and Stability.
Acuity Brands, Inc. (AYI)
AYI provides lighting and building management solutions in North America and internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).
On November 29, 2022, AYI released its 2022 EarthLIGHT Report on its ESG accomplishments, new ESG targets and shared progress on its ongoing initiatives.
The company also announced its commitment to achieving Net Zero by 2040. It looks forward to working with the Science-Based Targets Initiative (SBTi) to establish new interim targets to further reduce its Scope 1, 2, and 3 carbon emissions.
On January 12, 2022, the company partnered with Microsoft Corp. (MSFT) to enable sustainable building automation solutions. Integrating MSFT Azure IoT and AI with AYI solutions helps both companies reduce carbon emissions and meet their climate goals.
AYI’s net sales increased 11.8% year-over-year to $1.11 billion in the fourth quarter ended August 31, 2022. The company’s non-GAAP net income increased 11.1% from the year-ago value to $130.80 million, while its operating profit grew 12.7% year-over-year to $149.60 million.
The company’s non-GAAP EPS rose 20.8% from the prior-year quarter to $3.95. In addition, its adjusted EBITDA increased 6.8% year-over-year to $182.90 million.
Analysts expect AYI’s EPS and revenue to increase 5.6% and 6.9% year-over-year to $3.01 and $989.89 million, respectively, in the fiscal first quarter (ended November 2022). The stock has surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
It has gained 3.4% over the past three months to close the last trading session at $177.31.
AYI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. AYI also has an A grade for Quality and a B for Value. Among the 60 stocks in the same industry, it is ranked #2.
To see the additional POWR Ratings for AYI (Growth, Momentum, Stability, and Sentiment), click here.
Bassett Furniture Industries, Incorporated (BSET)
BSET develops, manufactures, sources, sells, and distributes home furnishings internationally. It operates in three segments: Wholesale, Retail company-owned stores, and Logistical services. The company operates a network of more than 63 company-owned and 34 licensee-owned stores.
On September 6, 2022, BSET acquired the capital stock of Noa Home Inc., a mid-priced e-commerce furniture retailer based in Montreal, Canada. Noa operates in Canada, Australia, Singapore, and the United Kingdom and has had net revenues of C$2 million ($1.49 million) for its most recent fiscal year.
The acquisition is expected to provide BSET with a stronger online presence and allow the company to attract more digitally native customers.
For the fiscal third quarter that ended August 27, 2022, BSET’s net sales of furniture and accessories increased 12.5% year-over-year to $118.01 million, and its gross profit grew 15.5% year-over-year to $60.77 million. Its income from operations was $10.67 million, up 114.5% year-over-year.
In addition, BSET’s net income and EPS increased 152.9% and 164.5% year-over-year to $7.63 million and $0.82, respectively.
Analysts expect BSET’s EPS for the current fiscal year (ending November 2022) to increase 24% year-over-year to $2.27. Also, the company has surpassed the consensus EPS in three of the trailing four quarters.
Shares of BSET have gained 12.7% year-to-date to close the last trading session at $17.52.
BSET’s POWR Ratings reflect its promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Sentiment and Quality and a B for Value. Within the Home Improvement & Goods industry, it is ranked #3. Click here to see additional ratings of BSET for Growth, Momentum, and Stability.
LOW shares were trading at $201.60 per share on Monday morning, down $0.17 (-0.08%). Year-to-date, LOW has declined -20.56%, versus a -15.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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