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Bull of the Day: Havertys (HVT)

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HAVERTYS (HVT - Free Report) is going from a pandemic winner to a recovery winner as "nesting" remains in vogue in 2021 even as the vaccine rolls out. This Zacks Rank #1 (Strong Buy) saw double digit store comparables again in the first quarter.

HAVERTYS is a furniture retailer with 121 showrooms in 16 states in the South and Midwest. Established in 1885, this small cap company with a market cap of $846 million, specializes in the middle to upper-middle price ranges.

Another Big Beat in the First Quarter

On Apr 27, HAVERTYS reported its first quarter results and beat the Zacks Consensus by $0.61. It reported earnings of $1.04 versus the Zacks Consensus of just $0.43 for a beat of 141%.

It was the third big beat in a row as the furniture demand took off last summer.

Comparable store sales rose 11.5% year-over-year, however, it was the quarter when the first impacts of COVID-19 hit the company. Last year stores closed on Mar 19, 2020 and deliveries were halted on Mar 21, 2020.

The pace of demand has not slowed since the second quarter of 2020.

Written business was up 10.8% over the fourth quarter.

However, it's still facing challenges on the supply chain as it works to reduce its backlog and provide updated delivery estimates.

HAVERTYS has also worked with vendors on price increases, which has impacted its retail prices and product mix.

Up until this point, it's been able to push through the price increases, however, and the gross profit margins have remained elevated.

Bullish Outlook for 2021

Analysts have been behind the curve with the furniture retailers, thinking it was just a pandemic play.

But HAVERTYS has seen strong demand, boosted by the strong housing market, continue into 2021 although it does expect the nesting trends to moderate.

It expects gross profit margins to be between 56.5% and 57% in 2021. Gross profit margin was 57.1% in the first quarter.

2021 and 2022 Estimates Jump

Zacks only has one analyst estimate for this small-cap retailer.

But after this earnings report, the Zacks Consensus for 2021 jumped to $4.02 from $2.12. That's earnings growth of 113% from 2020 as the company made just $1.88.

The analyst is also bullish on 2022, with it revised higher as well. The Zacks Consensus rose to $4.30 from $2.24 in the last month.

Raised the Dividend

On May 14, HAVERTYS raised its quarterly dividend by 13.6% to $0.25 from $0.22 per share.

It's currently yielding 2%.

"Our operating results since the last half of 2020 have been outstanding. We have a long history of providing returns to stockholders and the board’s decision to increase the dividend reflects our results and outlook," said Clarence H. Smith, chairman and chief executive officer.

Shares Rally But Remain Dirt Cheap

HAVERTYS shares have taken off in 2021, jumping 68.2% year-to-date.

But with the big increase in earnings per share expected, they are still dirt cheap with a forward dividend of just 11.2.

With the housing market in a strong bull market boosted by Millennial demand, could the furniture makers also be in a multi-year growth cycle?

Most of the furniture retailers are attractively priced in 2021.

Ethan Allen has a forward P/E of just 13. La-Z-Boy Inc. (LZB - Free Report) trades at 15x.

And even Williams-Sonoma Inc. (WSM - Free Report) , which owns the red-hot West Elm brand, is trading at just 17.4x.

For investors looking for a cheap retail stock, which is also shareholder friendly, HAVERTYS is one to keep on the short list.

[In full disclosure, Tracey owns shares of WSM in her personal portfolio.]

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