Increasing investments in residential buildings accompanied with technological advancements and solutions are expected to drive growth for the Zacks
Furniture industry. Although spikes in COVID-19 cases, continued investments in e-commerce and intense competition might keep margins under pressure, an improved housing market scenario in the United States, product innovation and accretive buyouts should favor the furniture industry. Apart from these tailwinds, efficient cost management should lend support to Bassett Furniture Industries, Incorporated ( BSET Quick Quote BSET - Free Report) , American Woodmark Corporation ( AMWD Quick Quote AMWD - Free Report) , La-Z-Boy Incorporated ( LZB Quick Quote LZB - Free Report) and Sleep Number Corporation ( SNBR Quick Quote SNBR - Free Report) . Industry Description
The Zacks Furniture industry comprises manufacturers, designers and marketers of residential and commercial furnishings solutions. Some of the companies provide kitchen and bath cabinets as well as various engineered components and products in the United States and international markets. A 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, healthcare, security, government, retail, commercial, education and transportation. 3 Trends Shaping the Future of the Furniture Industry Improved housing market fundamentals in the United States make the near-term outlook for the furniture industry encouraging. The continuous declines in mortgage rates have been driving new home sales, which in turn, should drive demand for furniture products in the near term. Meanwhile, the working from home or stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on more home improvement projects. So, significant investments in renovation are expected to brighten the market outlook. Solid Residential & Repair & Remodeling Market: Product innovation plays a key decisive factor for market share gain in this industry. Players are investing in new products to improve product mix in a competitive landscape and drive top-line growth. Also, millennials represent 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 elevated. Also, customer experience is getting enhanced by innovative marketing techniques, with emphasis on digital marketing, better merchandising, store remodeling and loyalty programs. Moreover, industry players like Innovation, Digital Marketing & Acquisitions: Leggett & Platt, Incorporated ( LEG Quick Quote LEG - Free Report) and others are pursuing acquisitions to broaden their product portfolio and expand geographic footprint as well as market share. : Industry participants have been bearing the brunt of coronavirus-induced disruptions that has hurt business activities, global supply chains and international trade at large. Also, the furniture industry is highly competitive with home furnishing retailers, department stores and antique dealers giving a hard time. Again, companies need to make incremental investments to address an expanding omni-channel environment as shoppers tend to look for online options. Growth in online sales will continue to dent traditional furniture retailers’ market share as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the market. Meanwhile, industry players are distressed by rising raw material prices, logistic expenses and labor costs. Moreover, volatility in lumber prices is a key cause for concern. Coronavirus-Induced Disruptions, Stiff Competition & Higher Costs Zacks Industry Rank Indicates Bright Prospects
The Zacks Furniture industry is a seven-stock group within the broader Zacks
Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #25, which places it at the top 10% 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 lucrative near-term prospects. 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 top 50% of the Zacks-ranked industries is a result of 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. Since October 2020, the industry’s earnings estimates for 2021 have been revised 2.1% upward. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Lags Sector & S&P 500
The Zacks Furniture industry has underperformed 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 gained 4.1% compared with the S&P 500’s increase of 16.4% and the broader sector’s 13.6% growth. One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing furniture stocks, the industry is currently trading at 17.8X compared with the S&P 500’s 23X and the sector’s 33.8X.
Over the past five years, the industry has traded as high as 17.8X and as low as 9.4X, with the median being 15.3X, as the chart below shows. Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
4 Furniture Stocks to Buy Right Now
We have selected four stocks from the Zacks universe of furniture stocks that currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see
. the complete list of today’s Zacks #1 Rank stocks here Bassett Furniture Industries, Incorporated: Based in Bassett, VA, this company manufactures, markets, and retails home furnishings in the United States and internationally. Although COVID-19-related turmoil continued to plague the company’s daily operations during the period, the company’s Wholesale business has been gaining from Bassett Design Centers and Club Level motion program, expanding its market share with the independent furniture store community, especially with Club Level assortment. It Corporate Retail unit has been benefiting from digital outreach strategies. Also, its focus on “Made in America” strategy bodes well. It has been architecting product designs that will leverage domestic supply chain and manufacturing prowess. The stock has gained 29.3% in the past year, outperforming the industry’s 4.1% rise. The company currently sports a Zacks Rank #1 and has an expected earnings growth of 413.6% for fiscal 2021. The Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 43.8% over the past 30 days. Price and Consensus: BSET American Woodmark Corporation: Headquartered in Winchester, VA, this Zacks Rank #2 company manufactures and distributes kitchen, bath and home organization products. Strong momentum in R&R activity is expected to drive American Woodmark’s growth. Its home center and independent dealer and distribution businesses have been delivering solid growth. Although the stock has declined 6.3% over the past year, the Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 1.1% over the past 30 days, depicting analysts’ optimism over the company’s prospect. The company has an expected earnings growth of 7.4% for fiscal 2021. Price and Consensus: AMWD
La-Z-Boy Incorporated: Based in Monroe, MI, this Zacks Rank #2 company manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. Higher discretionary spending to home furnishings has been a bliss for La-Z-Boy. Moreover, lower expenses have been providing a boost to its margins. The stock has gained 35.5% in the past year. The company has an expected earnings growth of 26.4% for fiscal 2021. The Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 27.6% over the past 30 days. Price and Consensus: LZB Sleep Number Corporation: Headquartered in Minneapolis, MN, this Zacks Rank #1 company provides sleep solutions and services in the United States. It has been reaping benefits from solid demand for its smart beds. The company has been demonstrating the resilience of its vertical business model through top and bottom-line performance. The company has been accelerating strategic initiatives, strengthening competitive advantages and creating meaningful value for customers, team, business partners and shareholders. The stock has gained 90.4% in the past year. The company currently carries a Zacks Rank #2 and has an expected earnings growth of 6.4% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 3.6% over the past 60 days. Price and Consensus: SNBR