Housing has been one of the best performing sectors amid the pandemic thanks to a surge in home buying and home improvement projects. Housing experienced a sharp V-Shaped recovery with mortgage applications hitting new highs. Record-low mortgage rates, a shortage of inventory, and endless bidding wars drove home prices. According to the recent data posted by the S&P Case-Shiller Index, home prices surged 5.7% annually in August 2020, up from 4.8% in July 2020…
The SPDR S&P Homebuilders ETF (XHB), which represents the homebuilding segment of the S&P Total Market Index, has gained 113% since hitting its 52-week low in March, versus the S&P 500’s 42% return over period. As the pandemic dragged on, consumer behavior shifted, with an increasing focus on home improvements, renovations, remodeling, repairs, and maintenance, away from discretionary spending like entertainment, traveling, and dining.
The favorable backdrop should continue to drive the performance of home improvement companies like Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW), The Sherwin-Williams Company (SHW) and Whirlpool Corporation (WHR).
Home Depot, Inc. (HD)
HD is a retailer of home improvement products such as building materials, lawn and garden products, and home improvement tools. The company also provides home maintenance services. HD has been operating approximately 2,300 retail stores throughout the country.
HD has recently signed a lease to move into a former Bed Bath & Beyond store on Manhattan’s Upper East Side, which spans more than 120,000 square feet over four floors. Moreover, in line with the learn-from-home trend, HD has expanded at-home learning resources to its digital DIY workshops library for kids, with virtual field trips providing insights into how products come to life and eventually, make it to the retailer’s shelves.
HD is scheduled to report its fiscal third quarter financial results on November 17th, 2020. Despite challenges posed by the pandemic, HD had an excellent second quarter that ended in August 2020. The company posted a top-line of $38.1 billion, growing 23.4% year-over-year. Sales per retail square foot increased 23.5% compared to year-ago quarter to $629.38. HD generated $9.1 billion in cash flow from operations, improving 237% year-over-year, as customer transactions increased 12.3% year-over-year to 511.5 million.
EPS for the quarter came in at $4.02, increasing 26.8% year-over-year and beating the consensus estimates by 8.4%. In the last couple of years, management has spent heavily to integrate its physical and online businesses. HD is focusing on supply chain management rather than relying on opening more stores to boost growth. Hence, analysts expect current year EPS to grow 10.9% year-over-year.
HD closed yesterday’s trading session at $269.63, gaining 25.7% year-to-date. The stock is presently trading just 8% below its all-time high of $292.95 and is up nearly 25% in the past six months.
How does HD stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
B for Peer Grade
A for Industry Rank
B for Overall POWR Rating
The stock is also ranked #7 out of 69 stocks in the Home Improvement & Goods industry.
Lowe’s Companies, Inc. (LOW)
LOW operates as a home improvement retailer in the United States and Canada, serving approximately 18 million customers a week. The company offers a line of products for construction, maintenance, repair, remodeling, and decorating. As of July 31, 2020, LOW’s operated 1,968 home improvement and hardware stores. The company also sells its products through its websites and mobile application.
LOW has recently announced its plan to hire 20,000 associates across its US stores and regional distribution centers to support customer demand this holiday season and beyond. Moreover, the company issued a $4 billion-worth series of notes earlier this month to purchase its existing notes in the concurrent tender offers and further strengthen its liquidity position.
LOW is scheduled to report the…
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