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4 Furniture Stocks for Solid Returns Amid Industry Challenges
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Increasing investments in residential buildings accompanied with technological advancements and solutions are expected to drive the Zacks Furniture industry’s growth. Although a spike in COVID-19 cases, supply-chain disruptions, greater inflation, 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 La-Z-Boy Incorporated (LZB - Free Report) , Leggett & Platt, Incorporated (LEG - Free Report) , Sleep Number Corporation (SNBR - Free Report) , and WillScot Mobile Mini Holdings Corp. (WSC - 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 as well as modular space and portable storage solutions. They are involved in designing and producing a wide variety of engineered components and products for homes, offices, and automobiles. The industry players cater to different sectors, namely, construction, energy, healthcare, security, government, retail, commercial, education and transportation.
3 Trends Shaping the Furniture Industry's Future
Solid Residential & Repair & Remodeling Market: Improved housing market fundamentals in the United States make the near-term outlook of the furniture industry encouraging. Historically-low mortgage rates have 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, 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 the 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. Furthermore, the 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. The industry players are distressed by rising raw material prices, logistic expenses and labor costs. The companies have been witnessing supply chain disruptions, especially in chemicals, semiconductors, labor and transportation, which are constraining volume growth.
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.
Zacks Industry Rank Indicates Dull 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 #233, which places it at the bottom 8% 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 tepid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since July 2021, the industry’s earnings estimates for 2021 have been revised 3.4% downward.
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, Lags S&P 500
The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 26.9% compared with the S&P 500’s increase of 36.8% and broader sector’s 16.3% 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 15.2X compared with the S&P 500’s 21.3X and the sector’s 25.3X.
Over the past five years, the industry has traded as high as 19.3X and as low as 9.4X, with the median being 15.3X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
4 Furniture Stocks to Watch Now
We have selected two stocks from the Zacks universe of furniture stocks that currently carry a Zacks Rank #2 (Buy). We have also highlighted two other stocks carrying a Zacks Rank #3 (Hold) with solid prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
La-Z-Boy: Based in Monroe, MI, this company manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. The company has been benefiting from strong demand trends across all business units. Further, its solid cash position and investment in business bode well. The company has been navigating well through challenges like escalating commodity and freight costs.
This Zacks Rank #2 company’s earnings are expected to grow 28.2% in fiscal 2022. Its shares have dropped 16.4% in the year-to-date period compared with the industry’s 9% growth. Nonetheless, La-Z-Boy has seen an upward estimate revision of 10.9% for fiscal 2022 earnings over the past 30 days, depicting analysts’ optimism over the stock’s prospects.
Price and Consensus: LZB
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 for homes, offices, and automobiles. Strong demand in residential end markets, impressive recovery in Automotive and Hydraulic Cylinders along with a modest recovery in Aerospace have been benefiting the company. Also, strategies to enhance the business portfolio, acquisition drive, disciplined capital allocation, higher demand and segmental recovery across the business, raw material-related selling price increase as well as favorable currency bode well.
The stock has gained 4.2% so far this year. This Zacks Rank #2 company has an expected earnings growth rate of 33.8% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 5.2% over the past 30 days.
Price and Consensus: LEG
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. It has been accelerating strategic initiatives, strengthening competitive advantages, and creating meaningful value for customers, team, business partners as well as shareholders.
The stock, carrying a Zacks Rank #3, has gained 16.2% year to date. Earnings growth is projected at 48.6% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 7.4% over the past 60 days.
Price and Consensus: SNBR
WillScot Mobile Mini Holdings: This Phoenix, AZ-based company provides modular space and portable storage solutions. Increased core leasing revenues in the NA Modular segment, the addition of Mobile Mini's revenues and higher deliveries of all four products across most of end markets served by the company have been driving its performance.
This Zacks Rank #3 stock has gained 36.2% so far this year. The company has an expected earnings growth rate of 70.3% for 2021.
Price and Consensus: WSC
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4 Furniture Stocks for Solid Returns Amid Industry Challenges
Increasing investments in residential buildings accompanied with technological advancements and solutions are expected to drive the Zacks Furniture industry’s growth. Although a spike in COVID-19 cases, supply-chain disruptions, greater inflation, 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 La-Z-Boy Incorporated (LZB - Free Report) , Leggett & Platt, Incorporated (LEG - Free Report) , Sleep Number Corporation (SNBR - Free Report) , and WillScot Mobile Mini Holdings Corp. (WSC - 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 as well as modular space and portable storage solutions. They are involved in designing and producing a wide variety of engineered components and products for homes, offices, and automobiles. The industry players cater to different sectors, namely, construction, energy, healthcare, security, government, retail, commercial, education and transportation.
3 Trends Shaping the Furniture Industry's Future
Solid Residential & Repair & Remodeling Market: Improved housing market fundamentals in the United States make the near-term outlook of the furniture industry encouraging. Historically-low mortgage rates have 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, 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 the 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. Furthermore, the 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. The industry players are distressed by rising raw material prices, logistic expenses and labor costs. The companies have been witnessing supply chain disruptions, especially in chemicals, semiconductors, labor and transportation, which are constraining volume growth.
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.
Zacks Industry Rank Indicates Dull 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 #233, which places it at the bottom 8% 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 tepid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since July 2021, the industry’s earnings estimates for 2021 have been revised 3.4% downward.
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, Lags S&P 500
The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector but lagged the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 26.9% compared with the S&P 500’s increase of 36.8% and broader sector’s 16.3% 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 15.2X compared with the S&P 500’s 21.3X and the sector’s 25.3X.
Over the past five years, the industry has traded as high as 19.3X and as low as 9.4X, with the median being 15.3X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
4 Furniture Stocks to Watch Now
We have selected two stocks from the Zacks universe of furniture stocks that currently carry a Zacks Rank #2 (Buy). We have also highlighted two other stocks carrying a Zacks Rank #3 (Hold) with solid prospects. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
La-Z-Boy: Based in Monroe, MI, this company manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. The company has been benefiting from strong demand trends across all business units. Further, its solid cash position and investment in business bode well. The company has been navigating well through challenges like escalating commodity and freight costs.
This Zacks Rank #2 company’s earnings are expected to grow 28.2% in fiscal 2022. Its shares have dropped 16.4% in the year-to-date period compared with the industry’s 9% growth. Nonetheless, La-Z-Boy has seen an upward estimate revision of 10.9% for fiscal 2022 earnings over the past 30 days, depicting analysts’ optimism over the stock’s prospects.
Price and Consensus: LZB
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 for homes, offices, and automobiles. Strong demand in residential end markets, impressive recovery in Automotive and Hydraulic Cylinders along with a modest recovery in Aerospace have been benefiting the company. Also, strategies to enhance the business portfolio, acquisition drive, disciplined capital allocation, higher demand and segmental recovery across the business, raw material-related selling price increase as well as favorable currency bode well.
The stock has gained 4.2% so far this year. This Zacks Rank #2 company has an expected earnings growth rate of 33.8% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 5.2% over the past 30 days.
Price and Consensus: LEG
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. It has been accelerating strategic initiatives, strengthening competitive advantages, and creating meaningful value for customers, team, business partners as well as shareholders.
The stock, carrying a Zacks Rank #3, has gained 16.2% year to date. Earnings growth is projected at 48.6% for 2021. The Zacks Consensus Estimate for its 2021 earnings has moved up 7.4% over the past 60 days.
Price and Consensus: SNBR
WillScot Mobile Mini Holdings: This Phoenix, AZ-based company provides modular space and portable storage solutions. Increased core leasing revenues in the NA Modular segment, the addition of Mobile Mini's revenues and higher deliveries of all four products across most of end markets served by the company have been driving its performance.
This Zacks Rank #3 stock has gained 36.2% so far this year. The company has an expected earnings growth rate of 70.3% for 2021.
Price and Consensus: WSC