The home improvement industry is booming due to several factors, such as growing homeowner expenditures on home improvement projects, technological advancements, and the popularity of do-it-yourself (DIY) projects fueled by online tutorials and social media platforms.
Given the industry’s tailwinds, investors could consider buying fundamentally sound home stocks The Home Depot, Inc. (HD), ADT Inc. (ADT), and Kingfisher plc (KGFHY), which are trading at a discount compared to their peers.
In recent years, the home improvement sector in the U.S. has experienced a remarkable expansion, driven by changing preferences among homeowners, the need to update aging housing inventory, and a solid real estate market that promotes renovations and enhancements. The U.S. home improvement market is expected to grow at a CAGR of 5.2% until 2032.
Furthermore, rapid advancements in home automation technology and ongoing innovation in appliances have spurred a surge in household renovations aimed at integrating superior systems, particularly for consumers embracing smart appliances more extensively.
Lately, there has been a high demand for home improvement goods that reduce environmental impact and lower energy costs, including solar panel installations, eco-friendly building materials, and high-efficiency HVAC systems. The smart home market is expected to reach $370.95 billion by 2029, growing at a CAGR of 25.3% from 2024 to 2029.
Considering these encouraging trends, let’s take a look at the fundamentals of the three best Home Improvement & Goods industry stocks, beginning with the third choice.
Stock #3: The Home Depot, Inc. (HD)
HD operates as a home improvement retailer internationally. The company sells various building materials, home improvement products, lawn and garden products, décor products, and facilities maintenance, repair, and operations products.
On May 6, 2024, HD declared a first-quarter cash dividend of $2.25 per share, payable on June 13, 2024. Over the last three years, HD’s dividend payouts have grown at an 11.5% CAGR. While HD’s four-year average dividend yield is 2.29%, the company’s annual dividend of $9 translates to a yield of 2.61% at the current price level.
On March 28, HD agreed to purchase SRS Distribution Inc., a prominent distributor focused on specialized residential trades and caters to professional roofers, landscapers, and pool contractors.
SRS will accelerate HD's growth with the residential professional customer. It aligns with HD's strengths and will empower the company to better serve complex project purchase occasions with renovators and remodelers while establishing The Home Depot as a leading specialty trade distributor across multiple verticals.
HD’s trailing-12-month EBITDA margin of 16.14% is 45.2% higher than the industry average of 11.12%. Also, the stock’s trailing-12-month net income margin and EBIT margin of 9.79% and 13.97% are 108.4% and 81% higher than the industry averages of 4.70% and 7.72%, respectively.
For the fiscal first quarter that ended April 28, 2024, HD reported net sales and gross profit of $26.42 billion and $12.43 billion, respectively. Also, the company’s net earnings came in at $3.60 billion and $3.63 per share, respectively. Additionally, as of April 28, 2024, its cash and cash equivalents were $4.26 billion, compared to $1.26 billion as of April 30, 2023.
Analysts expect HD’s revenue for the fiscal year ending January 2025 to increase marginally year-over-year to $154.17 billion. Street expects its EPS to grow 1.5% year-over-year to $15.34 for the same period. Moreover, the company surpassed consensus EPS estimates in each of the trailing four quarters, which is promising.
HD’s stock has soared 12% over the past six months to close the last trading session at $344.21.
HD’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Stability and Quality. It is ranked #18 in the 58-stock B-rated Home Improvement & Goods industry.
Beyond what is stated above, we’ve also rated HD for Growth, Momentum, Sentiment, and Value. Get all HD ratings here.
Stock #2: ADT Inc. (ADT)
ADT offers security, automation, and smart home solutions to consumers and businesses, providing monitored security systems, fire detection, video surveillance, and access control. The company operates through different segments: Consumer and Small Business; Commercial; and Solar.
On January 24, 2024, ADT announced exiting its residential solar business. The company will remain focused on cash flow generation and capital-efficient growth within its core security and smart home business. As part of this continued focus, ADT also advanced its capital allocation strategy, including a cash dividend increase and authorization of a new share repurchase program.
The company declared a quarterly cash dividend of $0.055 per share, payable on April 4, 2024. This dividend represents a 57% increase over the previous quarterly dividend. Also, it authorized a $350 million share repurchase program. As the company executes share repurchases, the Board will periodically review the remaining authorization as part of its capital allocation strategy.
In terms of forward EV/EBITDA, ADT is trading at 5.62x, 42.4% lower than the industry average of 9.77x. Its forward EV/EBIT multiple of 12.14 is 13.3% lower than the industry average of 14.01. Likewise, the stock’s forward Price/Book of 1.47x is 40.6% lower than the industry average of 2.48x.
ADT’s trailing-12-month gross profit margin of 80.58% is 118% higher than the industry average of 36.97%. Its trailing-12-month EBIT margin of 22.30% is 188.9% higher than the 7.72% industry average. Also, the stock’s trailing-12-month EBITDA margin of 49.56% is significantly higher than the 11.12% industry average.
During the first quarter, which ended March 31, 2024, ADT’s total revenue was $1.21 billion, with end-of-period recurring monthly revenue (RMR) up 3% to $353 million. Its Consumer and Small Business (CSB) revenue rose 5% from the prior year’s quarter to $1.20 billion, and segment adjusted EBITDA was $638 million, up 8% year-over-year.
Furthermore, the company reported an adjusted income from continuing operations of $151 million and $0.16 per share, up 58.9% and 45.5% year-over-year, respectively.
Analysts expect ADT’s revenue to increase 5.5% year-over-year to $5.15 billion, accompanied by a projected 14.6% year-over-year rise in EPS to $0.84 for the fiscal year ending December 2025. Moreover, the company has surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
Shares of ADT have gained 19.7% over the past year to close the last trading session at $7.18.
ADT’s POWR Ratings reflect bright prospects. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
ADT has a B grade for Quality, Momentum, and Sentiment. It is ranked #14 in the same industry.
In addition to the POWR Ratings highlighted above, one can access ADT’s ratings for Growth, Value, and Stability here.
Stock #1: Kingfisher plc (KGFHY)
Headquartered in London, the United Kingdom, KGFHY supplies home improvement products and services primarily in the United Kingdom, Ireland, France, and internationally. Its portfolio includes renowned brands like B&Q, Castorama, TradePoint, and Screwfix, offering a diverse range of home improvement solutions.
KGFHY’s forward EV/Sales of 0.54x is 55.2% lower than the industry average of 1.22x. Its forward EV/EBITDA multiple of 5.43 is 44.3% lower than the industry average of 9.74. Likewise, the stock’s forward EV/EBIT of 11.13x is 20.5% lower than the industry average of 14.01x.
KGFHY’s trailing-12-month levered FCF margin of 5.59% is 4% higher than the industry average of 5.37%. Also, the stock’s trailing-12-month asset turnover ratio of 1.08x is 9% higher than the 0.99x industry average.
For the fiscal year ended January 31, 2024, KGFHY reported sales of £12.98 billion ($16.48 billion). Its adjusted pre-tax profit and adjusted EPS were £568 million ($721.37 million) and 21.90p, respectively. Additionally, the company’s free cash flow increased significantly year-over-year to £514 million ($652.79 million).
Street expects KGFHY’s revenue for the fiscal year (ending January 2026) to increase 2.9% year-over-year to $16.72 billion. Over the past three months, the stock has gained 14.6% to close the last trading session at $6.57.
KGFHY’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.
KGFHY has an A grade for Value and a B for Stability and Quality. The stock is ranked #6 in the same industry.
Click here to access the additional KGFHY ratings (Growth, Momentum, and Sentiment).
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HD shares were trading at $338.80 per share on Monday morning, down $5.41 (-1.57%). Year-to-date, HD has declined -1.65%, versus a 11.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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