Zacks

5 Retail Building Products Stocks Set to Thrive Amid Industry Recovery

Rajani Lohia
10 min read

In This Article:

Participants in the Zacks Building Products – Retail industry are poised to benefit from technological initiatives to enhance the e-commerce experience. Companies are strengthening, expanding online offerings and enhancing omni-channel capabilities. Industry players are also gaining from strategic acquisitions, supply-chain growth and digital innovations. Experts believe that the U.S. Federal Reserve’s recent rate cut also positions the industry participants to benefit from lower interest rates, which should increase the demand for home improvement projects. Ongoing innovation, growth in e-commerce and a favorable interest rate environment are expected to support companies like The Home Depot Inc. HD, Lowe's Companies LOW, Fastenal Company FAST, Beacon Roofing Supply BECN and Tecnoglass TGLS.

However, the housing and home improvement industry faces a challenging environment, with broad pressures impacting company performance. These challenges are largely led by a decline in consumer demand, particularly in high-ticket, discretionary categories. Concerns also arise from inflation-related constraints, deflating lumber prices and rising costs in products and transportation.

About the Industry

The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceiling systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, and lawn and garden decor products. Some players deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.

4 Trends Shaping the Future of Building Products - Retail Industry

Digitization & Acquisitions in Focus: Retail Building Products companies have experienced a surge in online transactions as consumers increasingly turn to digital platforms, fueling top-line growth across the industry. In response, companies are expanding their digital presence by broadening online product selections and enhancing omni-channel capabilities to meet growing demand. To ensure fast and secure service, many players are scaling up their delivery operations. The sustained increase in digital transactions is projected to continue driving revenue growth for the industry players. Acquisitions remain a core growth strategy, with some companies pursuing geographic expansion and organic revenue improvement opportunities.

Do-it-Yourself (DIY) & Pro Projects: Despite a slowdown in consumer spending, the demand for interior makeovers and repair-remodel projects continues to present opportunities for industry players. DIY projects for decorating and maintaining furniture and fixtures are increasingly popular. Furthermore, consumers are more willing to hire professionals (“Pros”) for home renovations, driving demand for Pro services. Companies report that Pro backlogs are strong and elevated, which is expected to benefit home improvement participants, particularly those focusing on expanding Pro offerings.

Housing & Home Improvement Industry Trends: The home improvement industry has been facing significant pressures due to softened customer demand in certain big-ticket, discretionary categories. The high interest rates since early 2024 have dampened demand for larger projects. Inflationary pressures, particularly on lumber prices, have impacted the financial performances of companies in the sector in recent quarters. Recent signs of weakness in the housing market, including sluggish home sales, high prices and elevated mortgage rates, are affecting the performances of industry players. However, the recent decision by the U.S. Federal Reserve to cut interest rates by 50 basis points could prove to be a significant boost for home improvement companies. Lower borrowing costs are expected to make mortgages and home improvement loans more affordable, which should drive demand for renovation services and home purchases. Analysts also anticipate a rise in housing demand, with expectations of reduced home loan rates.

Rising Costs: Inflationary pressures, particularly rising input costs, pose concerns for companies in the home improvement industry, as these could put pressure on profit margins. Falling lumber prices may affect the industry’s performance. Some companies have adopted a cautious outlook for 2024, anticipating lower consumer spending, more normalized transaction levels and ongoing investments to capture market share. The industry is expected to see a gradual normalization in transactions as consumer spending shifts from goods to services.

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