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Near-Term Outlook for Furniture Industry Remains Bleak
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The Zacks Furniture industry comprises manufacturers, designers and marketers of residential and commercial furnishings solutions. Companies provide kitchen and bath cabinets as well as various engineered components and products in the United States and international markets. Few industry players also offer specialty rental services such as modular and portable storage solutions.
The industry players cater to different sectors, namely, construction, energy, health care, security, government, retail, commercial, education and transportation.
Let’s take a look at the industry’s three major themes:
The U.S. furniture industry is poised to gain from the robust economy, a solid job market and the consequent rise in disposable income, along with rising consumer confidence.
Millennials represents the largest consumer cohort in the furniture market. More money in the hands of this largest and most-active generation of homebuyers should keep demand high. Meanwhile, industry players are making investments in bringing out new products to improve product mix in a competitive landscape and drive top-line growth.
The furniture industry is highly competitive with home furnishing retailers, department stores and antique dealers giving a hard time. Again, companies need to continuously address a deteriorating omni-channel environment, as shoppers are looking more for online purchase. The growth in online sales will continue to fragment the traditional retailer market as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the furniture market. Meanwhile, furniture companies are also distressed by rising raw material and labor costs. Especially, increased lumber prices owing to import tariff, is denting margins.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects.
The Zacks Furniture industry, which is an eight-stock group within the broader Zacks Consumer Discretionary sector, currently carries a Zacks Industry Rank #237, which places it at the bottom 7% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Since February, the industry’s earnings estimate for the current year has gone down by approximately 30.8%.
Despite the industry’s gloomy near-term view, we will present a few furniture stocks that one can hold on to. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Lags on Stock Market Performance
The Zacks Furniture industry has lagged the broader Zacks Consumer Discretionary sector as well as the Zacks S&P 500 composite over the past year.
Over this period, the industry has declined 24% versus the broader sector’s growth of 1.4% and the S&P 500’s gain of 6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing furniture stocks, the industry is currently trading at 11.3X compared with the S&P 500’s 16.3X and the sector’s 17.7X.
Over the past five years, the industry has traded as high as 17.6X and as low as 10.9X, with the median being 14.1X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Price-to-Earnings Ratio (Past 5 Years)
Bottom Line
Solid economic recovery and a strong labor market along with rising consumer spending should favor the performance of the furniture industry. However, costs associated with continued investments, intense competition and rising raw material costs might keep margins under pressure.
None of the stocks in the space currently sports a Zacks Rank #1 (Strong Buy). Below are four stocks with a Zacks Rank #3 (Hold) that investors may want to retain in their portfolio for the time being. You can see the complete list of today’s Zacks #1 Rank stocks here.
WillScot Corporation (WSC - Free Report) : Baltimore, MD-based WillScot offers various specialty rental services in the United States, Canada, and Mexico. The consensus EPS estimate for the current year indicates year-over-year growth of 97.7%.
Price and Consensus: WSC
Virco Mfg. Corporation (VIRC - Free Report) : This Torrance, CA-based company manufactures, designs and distributes quality furniture for the contract and education markets worldwide. The consensus EPS estimate for the current fiscal year indicates year-over-year growth of 214.3%.
Price and Consensus: VIRC
Masonite International Corporation (DOOR - Free Report) : This Tampa, FL-based company is a designer and manufacturer of interior and exterior doors. The Zacks Consensus Estimate for earnings for the current year indicates year-over-year growth of 21%.
Price and Consensus: DOOR
Sleep Number Corporation (SNBR - Free Report) : Headquartered in Minneapolis, MN, this company provides sleep solutions and services in the United States. The Zacks Consensus Estimate for earnings for the current year indicates year-over-year growth of 18.8%.
Price and Consensus: SNBR
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Near-Term Outlook for Furniture Industry Remains Bleak
The Zacks Furniture industry comprises manufacturers, designers and marketers of residential and commercial furnishings solutions. Companies provide kitchen and bath cabinets as well as various engineered components and products in the United States and international markets. Few industry players also offer specialty rental services such as modular and portable storage solutions.
The industry players cater to different sectors, namely, construction, energy, health care, security, government, retail, commercial, education and transportation.
Let’s take a look at the industry’s three major themes:
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects.
The Zacks Furniture industry, which is an eight-stock group within the broader Zacks Consumer Discretionary sector, currently carries a Zacks Industry Rank #237, which places it at the bottom 7% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Since February, the industry’s earnings estimate for the current year has gone down by approximately 30.8%.
Despite the industry’s gloomy near-term view, we will present a few furniture stocks that one can hold on to. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Lags on Stock Market Performance
The Zacks Furniture industry has lagged the broader Zacks Consumer Discretionary sector as well as the Zacks S&P 500 composite over the past year.
Over this period, the industry has declined 24% versus the broader sector’s growth of 1.4% and the S&P 500’s gain of 6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing furniture stocks, the industry is currently trading at 11.3X compared with the S&P 500’s 16.3X and the sector’s 17.7X.
Over the past five years, the industry has traded as high as 17.6X and as low as 10.9X, with the median being 14.1X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Price-to-Earnings Ratio (Past 5 Years)
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Bottom Line
Solid economic recovery and a strong labor market along with rising consumer spending should favor the performance of the furniture industry. However, costs associated with continued investments, intense competition and rising raw material costs might keep margins under pressure.
None of the stocks in the space currently sports a Zacks Rank #1 (Strong Buy). Below are four stocks with a Zacks Rank #3 (Hold) that investors may want to retain in their portfolio for the time being. You can see the complete list of today’s Zacks #1 Rank stocks here.
WillScot Corporation (WSC - Free Report) : Baltimore, MD-based WillScot offers various specialty rental services in the United States, Canada, and Mexico. The consensus EPS estimate for the current year indicates year-over-year growth of 97.7%.
Price and Consensus: WSC
Virco Mfg. Corporation (VIRC - Free Report) : This Torrance, CA-based company manufactures, designs and distributes quality furniture for the contract and education markets worldwide. The consensus EPS estimate for the current fiscal year indicates year-over-year growth of 214.3%.
Price and Consensus: VIRC
Masonite International Corporation (DOOR - Free Report) : This Tampa, FL-based company is a designer and manufacturer of interior and exterior doors. The Zacks Consensus Estimate for earnings for the current year indicates year-over-year growth of 21%.
Price and Consensus: DOOR
Sleep Number Corporation (SNBR - Free Report) : Headquartered in Minneapolis, MN, this company provides sleep solutions and services in the United States. The Zacks Consensus Estimate for earnings for the current year indicates year-over-year growth of 18.8%.
Price and Consensus: SNBR
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>