Back to top

Image: Bigstock

Buy These 2 Top Home Appliance Stocks to Play Robust Industry Trends

Read MoreHide Full Article

Companies in the Zacks Household Appliances industry have been witnessing strong momentum from robust consumer demand trends for kitchen and home appliances. Consumers have been spending more time at home and increasing the budget for home-improvement appliances. The industry participants also stand to gain from the ongoing digital transformation as consumers adopt online shopping for purchasing electronics. Companies have been investing in web platforms to improve brand awareness and promotional offers.

The industry players have been steadfastly investing in product innovation to ease household chores, including cleaning, washing and cooking. Investments in product portfolios and the strong industry demand bode well for players like Whirlpool Corporation (WHR - Free Report) and Howden Joinery Group Plc (HWDJY - Free Report) .

About the Industry

The Household Appliances industry comprises companies that manufacture and market home appliances and other related products. Household appliances include electrical and mechanical devices, which facilitate chores like cooking, cleaning, laundry or food preservation. The players make refrigerators, washing machines, water coolers and heaters, microwave ovens, toasters, coffee makers, and other devices. The companies sell products through a network of mass merchandisers, retailers, distributors, dealers, and other builders and outlets. Players in the industry are committed to constant technological enhancements to offer smart home appliances (like voice-activated and hands-free devices). Whirlpool, Electrolux (ELUXY - Free Report) , Howden and Hamilton (HBB - Free Report) are prominent industry players.

What's Shaping the Future of the Household Appliances Industry

Solid Product Demand, Shift to E-commerce Trends: The surge in demand for household appliances and the rising popularity of online shopping have been aiding the companies amid the pandemic. Consumers continue to invest in household appliances, particularly kitchen and cleaning products, as the return-to-office trend has not completely set in, even though consumer mobility has increased with the lifting of restrictions. The companies expect the robust demand to continue aiding their top lines in the near term. Additionally, a spike in the demand for Air Purifiers has been beneficial for the industry participants. The shift in consumers buying electronics products to online platforms also continues despite the lifting of restrictions across many regions. The companies note that the structural shift in shopping preference is likely to stay in the near term, as online demand continues.

Innovation: Increased technological advancements, rapid urbanization, a rise in income, improved living standards, change in consumer lifestyle and a surge in need for household comfort are the key driving factors for the industry. The demand for fast-accessible and remotely monitored home appliances has been consistently rising, owing to tech-savvy consumers. This compels the industry players to invest in innovation and R&D to come up with differentiated and handy products. The companies are also committed to manufacturing appliances that are a one-stop solution for major household tasks. Appliance makers are installing smart grids, thermostats, digital inverter compressors and other monitoring sensors to make devices more energy-efficient. As a result, household appliances are becoming more high-tech, embedded with smart sensors and IoT-enabled technology. Such rampant innovation can significantly boost the companies’ top lines. Meanwhile, the industry players are resorting to pricing actions and cost-productivity programs to boost margins and profitability.

Higher Costs: Although regular technological upgrade is a major survival strategy in the industry, higher spending on technology and innovation has been eating into companies’ margins and profits. Freight cost inflation is an added concern. Prices for raw materials like steel and aluminum, which form the base metals for these companies, remain volatile. Further, volatility in oil, plastic or other secondary raw material prices is concerning. These expenses have been raising operational costs year over year, eroding companies’ profits. Disruptions in supply chains across all industries and continents continue to be headwinds. With most household appliance producers having operations across the continents, the impacts of these factors are likely to get reflected in their near-term results.

Zacks Industry Rank Indicates Bright Prospects

The Household Appliances industry is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #111, which places it at the top 44% 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 bright prospects in the near term. 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 position in the top 50% of the Zacks-ranked industries is a result of a 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. In the past year, the industry’s earnings estimates for the current year have moved up 95.7%.

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 vs. Broader Market

The Zacks Household Appliances industry has outperformed the broader Consumer Discretionary sector but lagged the S&P 500 Index over the past year.

Stocks in the industry have collectively gained 33.8% compared with the Consumer Discretionary sector’s growth of 21% over a year. The S&P 500 composite has risen 35.8% during the same period.

One-Year Price Performance

Household Appliances Industry's Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, a commonly used multiple for valuing Consumer Discretionary stocks, the industry is currently trading at 6.88X compared with the S&P 500’s 21.59X. Further, the sector’s forward-12-month P/E ratio stands at 27X.

Over the last five years, the industry has traded as high as 11.21X, as low as 5.61X and at the median of 9.05X as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)



 

2 Household Appliance Stocks to Buy

None of the stocks in the Zacks Household Appliances universe currently sports a Zacks Rank #1 (Strong Buy) but we have mentioned two stocks with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Whirlpool: Whirlpool is one of the largest manufacturers of household appliances in the world. The company, based in Harbor, MI, has been benefiting from higher home appliance demand across several markets as consumers continue to invest in home upgrades, particularly a spiked demand for Whirlpool’s kitchen and cleaning appliances product lines. The company’s strong market presence and superior brand image position it well to capture increasing customer demand for home and kitchen products. It is also gaining from high demand for its HEPA Air Purifiers, which are capable of removing 99.97% of particles from the air.

Increased volumes, solid execution of go-to-market endeavors, strong industry demand and cost-based pricing efforts have been key drivers. It expects the demand trends for home appliances to remain favorable in the forthcoming periods. The stock has rallied 34.6% in the past year. The Zacks Consensus Estimate for its 2021 earnings per share has moved up 9.3% in the past 30 days.

Price and Consensus: WHR

Howden: The London-based company, which manufactures and sells kitchen and joinery products in the U.K., France, Belgium, the Netherlands, and Germany, has gained 80% in the past year. The company is poised to gain from the introduction of innovative kitchen ranges. It introduced 18 kitchen ranges in 2020, with the new Hockley ranges having cabinet doors manufactured by Howden. The company is also expected to benefit from the development of a digital platform for its website to enhance digital capability and reinforce the Howden model. The Howdens.com web platform has been improving brand awareness and leading to increased web visits, online brochure requests and resulting depot contacts, and “anytime ordering” launched for trade customers. The Zacks Consensus Estimate for the company’s current-year earnings has risen 11% in the past seven days.

Price and Consensus: HWDJY