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3 Top Furniture Industry Stocks Defying Challenges

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Increasing investments in residential buildings accompanied with technological advancements and solutions are expected to drive growth of the Zacks Furniture industry. Although spike 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 as well as accretive buyouts should favor the furniture industry. In addition to these tailwinds, efficient cost management should lend support to Bassett Furniture Industries, Incorporated (BSET - Free Report) , Sleep Number Corporation (SNBR - Free Report) , and Leggett & Platt, Incorporated (LEG - Free Report) .

Industry Description

The Zacks Furniture industry comprises manufacturers, designers and marketers of residential as well as commercial furnishings solutions. Some of the companies provide kitchen and bath cabinets as well as various engineered components and products in the United States along with 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

Solid Residential & Repair & Remodeling Market: Improved housing market fundamentals in the United States make the near-term outlook of the furniture industry encouraging. Continuous decline in mortgage rates has been driving new home sales, which in turn, should drive demand for furniture products in the near term. Meanwhile, work 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. Again, the rapid vaccine rollout in the country, reopening of the economy and a major stimulus package are expected to boost consumer confidence.

Innovation, Digital Marketing & Acquisitions: 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 an emphasis on digital marketing, better merchandising, store remodeling and loyalty programs. Moreover, industry players are pursuing acquisitions to broaden their product portfolio, and expand geographic footprint as well as market share.

Rising Inflation, Stiff Competition & Higher Expenses: Consumers are increasingly concerned about rising inflation as the economy is recovering from the pandemic. Consumers have started to feel the pinch of inflation and many of them expect inflation to outpace income growth. This would represent a risk to spending, which makes up two-thirds of the economy. 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 of concern.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Furniture industry is an eight-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #127, which places it at the bottom 49% 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 bleak 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.

Despite the industry’s gloomy near-term view, we will present a few stocks that one may consider adding to their portfolio. Before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.

Industry Outperforms Sector & S&P 500

The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector as well as Zacks S&P 500 composite over the past year.

Over this period, the industry has gained 101.6% compared with the S&P 500’s increase of 44.7% and the broader sector’s 37.8% 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 19X compared with the S&P 500’s 21.9X and the sector’s 30.6X.

Over the past five years, the industry has traded as high as 19.3X and as low as 9.4X, with the median being 15.4X, as the chart below shows.

Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500

 

3 Furniture Stocks to Buy Right Now

We have selected three stocks from the Zacks universe of furniture stocks that currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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-related turmoil has been plaguing the company’s daily operations, the company’s Wholesale business has been gaining from Bassett Design Centers and the Club Level motion program, which in turn expanded its market share with the independent furniture store community, especially with Club Level assortment. Its Corporate Retail unit has been benefiting from digital outreach strategies. Also, the company’s focus on the “Made in America” strategy bodes well. It has been architecting product designs that will leverage the domestic supply chain and manufacturing prowess.

The stock has gained 458.3% in the past year, outperforming the industry’s 101.6% rise. The company’s earnings growth is expected to be 268.8% for fiscal 2021. The Zacks Consensus Estimate for its fiscal 2021 earnings has moved up 1.7% over the past 30 days.

Price and Consensus: BSET


Sleep Number Corporation: Headquartered in Minneapolis, MN, this company provides sleep solutions and services in the United States. It has been reaping benefits from solid demand for smart beds. The company has been demonstrating the resilience of the vertical business model through impressive top and bottom-line performance. The company has been accelerating strategic initiatives, strengthening competitive advantages, and creating meaningful value for customers, team, business partners as well as shareholders.

The stock has gained 262.3% in the past year. Earnings growth is projected at 38.2% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 10.6% over the past 30 days.

Price and Consensus: SNBR



Leggett & Platt, Incorporated: Headquartered in Carthage, MO, Leggett is a global manufacturer that conceives, designs, and produces a wide variety of engineered components as well as products found in many homes, offices, and automobiles. Strong demand in residential end markets and the Automotive business, raw material-related selling price increase as well as favorable currency have been benefiting the company. Also, strategies to enhance the business portfolio, acquisition drive, disciplined capital allocation and strong demand in residential end markets bode well.

The stock has gained 96.2% in the past year. The company has an expected earnings growth rate of 27.2% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 11.1% over the past 30 days.
Price and Consensus: LEG

 

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