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3 Stocks to Watch From Promising Textile-Home Furnishing Industry

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Although COVID-induced supply chain disruptions, rising raw material costs, and higher  transportation and labor expenses continue to put pressure on margins for companies in the Zacks Textile-Home Furnishing industry, sustained housing market momentum, efficient cost management and persistent focus on product innovation have been driving the same. Companies like Mohawk Industries, Inc. (MHK - Free Report) , Interface, Inc. (TILE - Free Report) and Culp, Inc. (CULP - Free Report) have been benefiting from strong end-market demand, acquisitions and strategic initiatives to improve profitability.

Industry Description

The Zacks Textile-Home Furnishing industry comprises manufacturers, designers, distributors, and marketers of flooring, carpet and upholstery products. The products include carpets, rugs, ceramic tile, laminate, wood, stone, vinyl flooring, medium-density fiberboards, luxury vinyl tiles, sheet vinyl products, hardwood flooring and vinyl flooring as well as roofing elements. They also provide knitted fabrics, jacquard woven fabrics, velvets, woven dobbies, piece-dyed woven products and polyurethane fabrics. The industry participants sell their products through a network of independently commissioned sales representatives — including distributors, retailers, wholesalers, specialty stores and home centers — in the United States and worldwide.

3 Trends Shaping the Future of Textile-Home Furnishing Industry

Robust Housing & Repair & Remodeling Market: Solid momentum of the U.S. housing market, backed by rising need for more work-at-home space and historically-low mortgage rates, is expected to be a major tailwind for industry participants. Strong demand stemming from an improved residential construction market is a major boon for industry participants. Meanwhile, work-from-home or stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on more do-it-yourself or DIY projects and other home improvement projects. So, the industry stands to benefit from a solid rise in repair and remodeling activities.

Product Innovation & Acquisitions: The industry participants have been drumming up sales with product innovation and expanded distribution in a highly competitive market. Companies are trying hard to offset higher costs by raising prices, expanding in growing channels, and foraying into new product categories and geographies. Furthermore, the players are pursuing acquisitions to broaden their product portfolio, and expand geographic footprint as well as market share.

Rising Costs, Tight Labor Market & Intense Competition: Although the demand trend has improved on the back of robust U.S. housing market fundamentals and repair & remodeling activities, the industry players have been bearing the brunt of the pandemic in the form of supply chains disruptions. The companies have been experiencing rising raw material costs in many of its product categories.

Rising cost of raw material and transportation, and a tight labor market are eating into profit margins. Significant investments in new products, distribution network and manufacturing facilities in a highly competitive landscape raise concerns.

Zacks Industry Rank Indicates Bullish Prospects

The Zacks Textile-Home Furnishing industry is a five-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #79, which places it in the top 31% 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 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 April 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 14.4% and 12.4% upward, respectively.

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 Outperforms Sector & S&P 500

The Zacks Textile-Home Furnishing industry has outperformed the broader Zacks Consumer Discretionary sector and Zacks S&P 500 composite over the past year.

Stocks in this industry have collectively gained 120% versus the broader sector’s growth of 18.6%. Meanwhile, the S&P 500 has climbed 36.8% in the same period.

One-Year Price Performance



 

Industry's Current Valuation

On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing these stocks, the industry is currently trading at 11.7X versus the S&P 500’s 21.3X and the sector’s 26.8X.

Over the past five years, the industry has traded as high as 19.4X, as low as 6.9X and at a median of 12.6X, as the chart below shows.

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

3 Textile-Home Furnishing Stocks to Keep a Close Eye on

Below we have discussed three stocks from the industry that have solid growth potential. The chosen companies currently carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mohawk Industries: This Calhoun, GA-based company is a leading supplier of flooring for both residential and commercial applications. Solid U.S. housing market, and repair & remodeling activities have been benefiting Mohawk. Its dominant market share in the highly fragmented and competitive industry, acquisition strategy, and strong international presence are expected to drive growth. It has been streamlining operations, merging facilities and removing higher-cost assets to combat cost woes.

The stock has gained 134% over the past year compared with the industry’s 120% rally. This Zacks Rank #1 company’s 2021 and 2022 earnings are expected to register growth of 58.9% and 9%, respectively. Meanwhile, its 2021 and 2022 bottom-line estimates have moved up 1.1% and 1.3%, respectively, over the past seven days, reflecting optimism surrounding the company’s earnings growth potential.

Price and Consensus: MHK



Culp: Headquartered in High Point, NC, the company manufactures, sources, markets and sells mattress fabrics as well as upholstery fabrics. Both the Mattress Fabrics and Upholstery Fabrics segments have been witnessing an increase in orders as well as shipments. It has been investing in additional equipment to expand capacity in North America. Strength and flexibility of global manufacturing and sourcing operations in the United States, Canada, Haiti, Asia, and Turkey will strengthen its position to execute strategies as well as support the current environment pertaining to the changing demands of customers.

This Zacks Rank #2 company’s earnings for the current and next year are expected to grow 27.1% and 20%, respectively. It has gained 33.5% in the past year. Although shares of Culp have underperformed the industry over the period, its fiscal 2022 and 2023 earnings estimates have moved up 11.9% and 2.3%, respectively, over the past 60 days, depicting analysts’ optimism.

Price and Consensus: CULP


Interface: Headquartered in Atlanta, GA, this modular flooring company primarily operates in the Americas, Europe and Asia-Pacific. The company has been gaining strength from rising orders, mainly driven by growing demand in the Americas, and parts of Europe as well as Asia-Pacific. It has been taking initiatives to reduce the cost structure, strengthen the balance sheet and improve cash flows that will help the company drive profits. As about 80% of the business involves renovation and remodel work, Interface is well positioned to benefit from sustained demand for remodeling activities.

This Zacks Rank #3 company has gained 78.1% over the past year, underperforming the industry. Nonetheless, the Zacks Consensus Estimate for its 2021 and 2022 earnings has increased 26.6% and 14.3%, respectively, over the past 60 days. Although earnings for 2021 are likely to reflect COVID-related woes, the same for 2022 are expected to grow 12.5%.

Price and Consensus: TILE



In-Depth Zacks Research for the Tickers Above


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