The housing market has proved to be one of the most resilient sectors, shrugging off COVID-19 pandemic-related disruptions with record-low mortgage rates and a sudden wave of residential relocations due to remote work implications. Home sales rose 10.5% year-over-year in 2020, according to the National Association of Realtors. This performance has been supported primarily by the low mortgage rate environment.
The housing market is witnessing a “low supply, high demand” scenario. First-time home buyers, millennials and Gen-Z home hunters are looking to take advantage of historically favorable mortgage rates. But on the supply side, there is a lack of availability of homes for sale because house construction activities were shut down for a long period last year due to the pandemic.
In addition, the Consumer Financial Protection Bureau (CFPB) has issued a statement saying that it planned to reconsider mortgage standards inked during Trump’s presidency. This would restrict the housing markets’ unchecked growth, thereby potentially preventing another subprime mortgage crisis. The proposed rule change should allow the housing markets to keep growing in the coming months with a reduced likelihood an asset bubble being created by closely assessing lenders’ and borrowers’ credit worthiness. Thus, the housing market growth should be sustainable over the long run.
The improving housing market is, in turn, driving the home goods market.
Given this backdrop, we think it would be wise to bet on companies like The Sherwin-Williams Company (SHW), Fortune Brands Home & Security, Inc. (FBHS), Tempur Sealy International, Inc. (TPX) and Sleep Number Corporation (SNBR) that are expanding their market presence.
The Sherwin-Williams Company (SHW)
SHW is a global leader in the manufacture, development, distribution, and sale of paint, coatings and related products to professional, industrial, commercial, and retail customers. The Company’s segments include The Americas Group, Consumer Brands Group and Performance Coatings Group.
This month, SHW announced a three-for-one stock split in the form of a stock dividend to make the stock more accessible to employees and a broader base of investors. This will make its shares more affordable to smaller investors and provide greater marketability and liquidity.
Also this month, SHW signed an agreement with global coatings company Hempel A/S to divest its Wattyl business. The company sees this divestiture as a long-term strategic fit that will enable SHW to better deploy resources to other opportunities offering greater growth, more meaningful scale, and higher returns and cash flow.
SHW’s consolidated net sales have increased 9.1% year-over-year to $4.49 billion in the fourth quarter ended December 31, 2021, due primarily to higher volume sales. Its gross profit has increased 6.3% from its year-ago value to $2.13 billion, while its net income has risen 6.4% to $407 million over the same period. Its EPS has improved 97.3% year-over-year to $4.46 over the three-month period.
Analysts expect SHW’s revenues to grow 8.5% year-over-year to $4.50 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $4.90 for the first quarter represents a 20.1% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 22.2% over the past year.
SHW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
SHW has a B grade for Stability and Sentiment and an A grade for Quality. Of the 64 stocks in the A-rated Home Improvement & Goods Industry, the stock is ranked #9.
In total, we rate SHW on eight different levels. Beyond what we stated above, we also have given SHW grades for Momentum, Value and Growth. Get all SHW’s ratings here.
Fortune Brands Home & Security, Inc. (FBHS)
FBHS, a leader in the home products industry, operates through three segments: Cabinets, Plumbing, and Doors & Security. The company provides home and security products for residential home repair, remodeling, new construction, and security applications.
Last December, FBHS completed the acquisition of LARSON Manufacturing, a market leading brand of storm, screen and security doors, for approximately $660 million, which was funded with cash on hand and borrowings under its revolving credit facility. This acquisition expands FBHs’ Outdoors & Security division, making it more robust and consistent with the industry’s changing trends.
Last month, Moen, a FBHS brand, launched a portfolio of whole-home smart water products and the new Moen App. This smart water network integrates seamlessly into the home and empowers homeowners with better water management, through enhanced water security, and convenient features.
FBHS’ net sales have increased 12.9% year-over-year to $1.66 billion in the fourth quarter ended December 31, 2021. Its operating income has increased 21.1% from its year-ago value to $233.20 million, while its EPS has improved 56.8% to $1.16 over the same period.
Analysts expect FBHS’ revenues to grow 16.3% year-over-year to $1.63 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $1.03 for the first quarter represents a 27.2% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 24.4% over the past year.
FBHS POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to Buy in our ratings system. FBHS has a B grade for Stability and Sentiment. The stock is ranked #19 in the same industry.
Click here to see the additional POWR Ratings for FBHS (Value, Momentum, Quality, and Growth).
Tempur Sealy International, Inc. (TPX)
Based in Kentucky, TPX develops, manufactures and markets bedding products worldwide. It offers its products in categories that include Bedding, which includes mattresses, foundations and adjustable foundations, and Other, which includes pillows, mattress covers, and various other comfort products. Its brand portfolio includes TEMPUR, Tempur-Pedic, Sealy, Sealy Posturepedic, and Stearns & Foster.
Last December, TPX announced its commitment to achieve carbon neutrality in its global operations by 2040. The company has undertaken meaningful steps toward reducing emissions that include sourcing complete renewable energy for its wholly owned U.S. and European manufacturing operations, driving zero-landfill waste initiatives across its organization, and several other initiatives. TPX is also on the verge of installing a solar power array at its largest mattress manufacturing operation in New Mexico.
TPX’s net sales have increased 21.3% year-over-year to $1.06 billion in the fourth quarter ended December 31, 2021. This was driven primarily by broad-based demand across the retail partners. Its gross profit has risen 18.8% from its year-ago value to $137.62 million, yielding a gross margin of 45.9%, up 160 basis points year-over-year. Its adjusted EPS has improved 97.1% year-over-year to $0.67 over the three-month period.
Analysts expect TPX’s revenues to grow 21.2% year-over-year to $996.38 million in the current quarter (ending March 31, 2021). A consensus EPS estimate of $0.50 for the first quarter represents a 51.5% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 63.2% over the past year.
It’s no surprise that TPX has an overall rating of B, which translates to Buy in our POWR Ratings system. TPX has a B grade of B for Quality, Sentiment, and Growth. In 64 stocks of the same industry, it is ranked #15.
Click here to see the additional POWR Ratings for TPX (Stability, Momentum and Value).
Sleep Number Corporation (SNBR)
SNBR offers consumers individualized sleep solutions and services, which include a complete line of Sleep Number beds, bases and bedding accessories. Its products are designed primarily to resolve sleep issues. The company’s proprietary 360 smart beds provide customers with adjustable, personalized comfort for a higher quality sleep.
Last December, SNBR announced a partnership with Make-A-Wish aimed at improving the lives of children battling critical illnesses through quality sleep.
SNBR’s revenues have increased 28.7% year-over-year to $241.34 million in the fiscal fourth quarter ended January 2, 2021. Its gross profit has risen 28.9% from its year-ago value to $355.690 million, yielding a gross margin of 62.7%, up 10 basis points year-over-year. Its adjusted EBITDA has increased 80.9% from the year ago value to $96.09 million, while its EPS has improved 80.9% to $5.03 over the same period.
Analysts expect SNBR’s revenues to grow 23.2% year-over-year to $582.34 million in the current quarter (ending March 31, 2021). A consensus EPS estimate of $1.85 for the first quarter represents a 36% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 156.4% over the past year.
SNBR has an overall rating of B, which translates to Buy in our ratings system. SNBR has a Quality Grade of A and a Growth Grade of B. It is currently ranked #24 of 64 stocks in the same A-rated industry.
The stock has also been given grades for Stability, Sentiment, Momentum and Value. Get all SNBR’s ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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SHW shares were unchanged in after-hours trading Friday. Year-to-date, SHW has declined -7.43%, versus a 1.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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