Chicago, IL – November 15, 2024 – Today, Zacks Equity Research The Home Depot Inc. HD, Lowe's Companies LOW, Fastenal Co. FAST, Beacon Roofing Supply BECN and Tecnoglass TGLS.
Link: https://www.zacks.com/commentary/2370313/5-retail-building-products-stocks-set-to-thrive-amid-industry-recovery
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., Lowe's Companies, Fastenal Co., Beacon Roofing Supply and Tecnoglass.
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.
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.
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.
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #23, which places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
The Zacks Building Products – Retail industry has delivered returns at par with the broader Zacks Retail-Wholesale sector and slightly underperformed the Zacks S&P 500 in the past year.
The industry and the broader sector have risen 32.4% in the past year, and the S&P 500 has rallied 33.2%.
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 23.88X compared with the S&P 500’s 22.63X. Meanwhile, the sector’s forward-12-month P/E stands at 24.39X.
Over the last five years, the industry traded as high as 23.88X and as low as 14.25X, the median being 19.79X.
Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows and associated aluminum products that serve the global residential and commercial end markets. TGLS has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements, and focus on execution. The company has been delivering solid results for its single-family residential business, which has a shorter cash cycle. Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues.
The Zacks Rank #1 (Strong Buy) company has been committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has skyrocketed 109% in a year. The Zacks Consensus Estimate for TGLS’s 2024 sales indicates growth of 6.9% from the year-ago quarter’s reported figure. The consensus estimate for the current fiscal year’s earnings has moved up 2.6% in the past seven days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Home Depot: The Atlanta, GA-based company is the world’s largest home improvement specialty retailer based on net sales. HD is poised to benefit from ongoing investments. Continued strength in the Pro and DIY categories, and its digital momentum have been the key drivers. Home Depot’s interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters, aiding digital sales.
HD is witnessing significant benefits from the execution of its One Home Depot plan, which focuses on supply-chain expansion, technology investments and digital enhancements. Home Depot has created the fastest, most efficient delivery network in home improvement through options like buy online pick up in store, buy online deliver from store, and curbside pickup. The Zacks Rank #2 (Buy) company has rallied 33.1% in a year. The Zacks Consensus Estimate for HD’s fiscal 2024 sales indicates year-over-year growth of 3.3%. The consensus estimate for current fiscal-year earnings has moved down 0.2% in the past seven days.
Lowe’s: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company has been enhancing the experience of its Pro customers by upgrading pro-focused brands and revamping the pro-service business’s website. LOW has also been well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category. Gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative are likely to drive the company’s results in the near and long term. The Total Home strategy has been resonating well with Pro and DIY customers for a while.
LOW has been progressing well with advancements in the digital channel. Lowe's is investing in enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. The Zacks Consensus Estimate for its fiscal 2024 sales and earnings indicates declines of 3.9% and 9.6%, respectively, from the year-ago quarter’s actuals. The consensus estimate for current fiscal-year earnings has moved up 0.2% in the past seven days. Shares of the Zacks Rank #3 (Hold) company have risen 33% in a year.
Fastenal: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies. The company’s focus on virtual platforms to boost customer engagement is improving sales and driving growth. Cost-control strategies like automating warehouses, increasing delivery efficiency through its trucking network and selling more private-level products with higher margins are aiding FAST to improve efficiency, thereby increasing returns.
Industrial vending is one of the primary growth drivers for Fastenal and has the potential to significantly increase sales and profits. The Zacks Rank #3 company is striving to boost its onsite location portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has risen 39.1% in a year. The Zacks Consensus Estimate for Fastenal’s 2024 sales and earnings indicates year-over-year growth of 3.1% and 0.5%, respectively. The consensus estimate for current fiscal-year earnings has been unchanged in the past 30 days.
Beacon Roofing: The Herndon, VA-based company is the largest publicly traded distributor of residential and non-residential roofing materials, and complementary building products in the United States and Canada. BECN has been gaining from several initiatives to drive its long-term ambition of growing and enhancing customer experience; expanding the top line and the margin; and boosting value for customers, suppliers, employees and shareholders. The company is focused on its Ambition 2025 targets (announced on Feb. 24, 2022), which emphasize operational excellence, above-market growth trajectory and accelerated stockholder value creation.
Beacon Roofing has been focused on four key strategic initiatives — organic growth, digital, On-Time and Complete, and branch operating performance — which have been boosting sales and helping improve operating profitability. Shares of the Zacks Rank #3 company have rallied 29.8% in a year. The Zacks Consensus Estimate for Beacon Roofing’s 2024 sales indicates growth of 7.2% from the year-ago quarter’s actual. The consensus estimate for current fiscal-year earnings has moved down 0.4% in the past 30 days.
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Fastenal Company (FAST) : Free Stock Analysis Report
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