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4 Stocks From the Thriving Retail Building Products Industry
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The Zacks Building Products – Retail industry has been gaining from consumers’ continued inclination toward home renovation and maintenance activities. Rapid urbanization and favorable trends in the housing market are an added advantage. Industry players are investing in boosting omni-channel capabilities to meet demand. Continuation of such positives is likely to benefit industry participants like The Home Depot, Inc. (HD - Free Report) , Lowe’s Companies Inc. (LOW - Free Report) , Fastenal Company (FAST - Free Report) and Builders FirstSource, Inc. (BLDR - Free Report) .
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufactures of industrial and construction materials, and distributors of wallboard and ceilings systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, lawn and garden decor products. Some players also deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products Industry
Favorable Housing Market Conditions: The Retail Building Products industry’s prospects are closely tied to the conditions prevailing in the U.S. housing market. Low mortgage rates and high demand for residential property have been aiding the housing market. The continued rise in consumers’ homebuying activities is expected to bode well for players in the retail building products space.
Adherence to Home Refurbishing Activities: Consumers have continued investing in making homes an enjoyable and comfortable space. In fact, the prolonged indoor stint amid the pandemic has made people realize the importance of homes. Despite the easing pandemic restrictions and rising outdoor movement, Americans continue to incline toward home renovation and maintenance projects. Industry experts opine that consumers’ discretionary spending on homes is likely to continue as interests in keeping houses well maintained are here to stay. Revamping interiors to facilitate work-from-home and entertainment needs continues to remain a major trend. Moreover, do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures are being widely undertaken. There is higher demand for gardening tools as well as products related to at-home activities such as paint and tool kits. Such upsides, along with rapid urbanization, should keep aiding the top-line performance of the industry participants.
Digitization in Focus: Retail Building Products industry participants have been witnessing a surge in online business transactions, thanks to consumers’ growing digital dependency. Companies have therefore been bolstering digital presence by expanding the availability of online assortmnets and bolstering omni-channel capabilities. Such prudent measures have been aiding the companies to meet the accelerated demand. Companies are also ramping up their delivery operations in order to provide safe and swift services, especially to Professional (Pro) customers. The boom in digital transactions should continue to drive the top line of key industry players.
Rising Costs: Some home improvement retailers are incurring additional costs to provide enhanced payments and other benefits to employees amid the pandemic. Moreover, a few players have been witnessing inflationary pressure across product categories as well as higher transportation costs. Such increased costs are likely to put pressure on margins. Nevertheless, companies are adopting prudent savings measures to cushion the impact of such costs.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #12, which places it in the top 5% 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 position 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 the beginning of April 2021, the industry’s earnings estimate for the year has increased 16%.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider buying for your portfolio. But before that, it’s worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector but has underperformed the Zacks S&P 500 over the past year.
The industry has gained 35% over this period against the broader sector’s decline of 4.1%. Meanwhile, the S&P 500 has moved up 39.6% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 22.11X compared with the S&P 500’s 21.59X. Further, the sector’s forward-12-month P/E stands at 27.66X.
Over the last five years, the industry has traded as high as 23.23X and as low as 16.03X, with the median being at 19.23X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Building Products Stocks to Keep a Close Eye on
Builders FirstSource: This Dallas, TX-based company is engaged in manufacturing and supplying building materials. The company is gaining from higher demand for its integrated services, backed by an improved housing market and shift to suburban living. Robust demand for single-family housing and low mortgage rates remain tailwinds for the company’s products and services. The company is focused on investing in innovations and enhancing digital solutions for its customers. This Zacks Rank #1 (Strong Buy) company has been active on the acquisition front, which is supporting the top line. It is also focusing on cost-management practices. The stock has surged 86.9% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 116.4% and 108.3%, respectively. The consensus estimate for the current fiscal-year earnings has been stable over the past 30 days.
The Home Depot: This Atlanta, GA-based home improvement retailer has been gaining from strong demand for home-improvement projects. The company is effectively adapting to the high-demand environment, driven by investments in its business, which includes ramping up assortments and delivery systems. It has been gaining from higher sales to Pro customers. The company is on track with its strategic investments to build a Pro ecosystem that includes professional grade product, exclusive brands, enhanced delivery, field sales support, HD rental and more. This Zacks Rank #2 (Buy) company is working toward boosting omni-channel functions such as curbside-pickup and buy-online pickup-in-store services with convenient pickup lockers. The stock has gained about 38% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 10.1% and 20.5%, respectively. The consensus estimate for the current fiscal-year earnings has improved 0.3% over the past 30 days.
Price and Consensus: HD
Lowe’s Companies: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. Prudent partnerships are helping the company to provide pro customers with a broad range of assortments that suit their specific home improvement and maintenance needs. To continue generating sales from pro customers, the company has been augmenting pro-focused brands. Lowe’s is progressing well with advancements in the digital channel. The company is investing toward enhancing omni-channel retailing capabilities. It completed the installation of Buy Online Pickup in Store touchless lockers across stores. Lowe’s is also gaining traction with the Total Home strategy that includes providing complete solutions for various types of home repair and improvements needs. Impressively, shares of this Zacks Rank #2 company have rallied 43.6% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 3.9% and 27.9%, respectively. The consensus estimate for the current fiscal-year earnings has improved 0.6% over the past 30 days.
Price and Consensus: LOW
Fastenal Company: This Winona, MN-based wholesale distributor of industrial and construction products has been gaining from an increase in the mix of fastener sales. Industrial vending is one of the primary growth drivers for Fastenal. Further, this Zacks Rank #2 company is striving to boost its onsite locations portfolio. The company has also implemented prudent cost control measures to curtail the pressure stemming from rising operating expenses. Fastenal is also working toward expanding its e-commerce presence. Notably, the stock has risen about 29.4% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 5.2% and 5.4%, respectively. The consensus estimate for the current fiscal-year earnings has improved by a penny over the past 30 days.
Price and Consensus: FAST
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4 Stocks From the Thriving Retail Building Products Industry
The Zacks Building Products – Retail industry has been gaining from consumers’ continued inclination toward home renovation and maintenance activities. Rapid urbanization and favorable trends in the housing market are an added advantage. Industry players are investing in boosting omni-channel capabilities to meet demand. Continuation of such positives is likely to benefit industry participants like The Home Depot, Inc. (HD - Free Report) , Lowe’s Companies Inc. (LOW - Free Report) , Fastenal Company (FAST - Free Report) and Builders FirstSource, Inc. (BLDR - Free Report) .
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufactures of industrial and construction materials, and distributors of wallboard and ceilings systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, lawn and garden decor products. Some players also deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products Industry
Favorable Housing Market Conditions: The Retail Building Products industry’s prospects are closely tied to the conditions prevailing in the U.S. housing market. Low mortgage rates and high demand for residential property have been aiding the housing market. The continued rise in consumers’ homebuying activities is expected to bode well for players in the retail building products space.
Adherence to Home Refurbishing Activities: Consumers have continued investing in making homes an enjoyable and comfortable space. In fact, the prolonged indoor stint amid the pandemic has made people realize the importance of homes. Despite the easing pandemic restrictions and rising outdoor movement, Americans continue to incline toward home renovation and maintenance projects. Industry experts opine that consumers’ discretionary spending on homes is likely to continue as interests in keeping houses well maintained are here to stay. Revamping interiors to facilitate work-from-home and entertainment needs continues to remain a major trend. Moreover, do-it-yourself (DIY) projects for decorating and maintaining furniture and fixtures are being widely undertaken. There is higher demand for gardening tools as well as products related to at-home activities such as paint and tool kits. Such upsides, along with rapid urbanization, should keep aiding the top-line performance of the industry participants.
Digitization in Focus: Retail Building Products industry participants have been witnessing a surge in online business transactions, thanks to consumers’ growing digital dependency. Companies have therefore been bolstering digital presence by expanding the availability of online assortmnets and bolstering omni-channel capabilities. Such prudent measures have been aiding the companies to meet the accelerated demand. Companies are also ramping up their delivery operations in order to provide safe and swift services, especially to Professional (Pro) customers. The boom in digital transactions should continue to drive the top line of key industry players.
Rising Costs: Some home improvement retailers are incurring additional costs to provide enhanced payments and other benefits to employees amid the pandemic. Moreover, a few players have been witnessing inflationary pressure across product categories as well as higher transportation costs. Such increased costs are likely to put pressure on margins. Nevertheless, companies are adopting prudent savings measures to cushion the impact of such costs.
Zacks Industry Rank Indicates Solid Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #12, which places it in the top 5% 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 position 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 the beginning of April 2021, the industry’s earnings estimate for the year has increased 16%.
Given the industry’s encouraging prospects, we present a few stocks that you may want to consider buying for your portfolio. But before that, it’s worth taking a look at the industry’s stock-market performance and current valuation.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has outperformed the broader Zacks Retail-Wholesale sector but has underperformed the Zacks S&P 500 over the past year.
The industry has gained 35% over this period against the broader sector’s decline of 4.1%. Meanwhile, the S&P 500 has moved up 39.6% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 22.11X compared with the S&P 500’s 21.59X. Further, the sector’s forward-12-month P/E stands at 27.66X.
Over the last five years, the industry has traded as high as 23.23X and as low as 16.03X, with the median being at 19.23X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Building Products Stocks to Keep a Close Eye on
Builders FirstSource: This Dallas, TX-based company is engaged in manufacturing and supplying building materials. The company is gaining from higher demand for its integrated services, backed by an improved housing market and shift to suburban living. Robust demand for single-family housing and low mortgage rates remain tailwinds for the company’s products and services. The company is focused on investing in innovations and enhancing digital solutions for its customers. This Zacks Rank #1 (Strong Buy) company has been active on the acquisition front, which is supporting the top line. It is also focusing on cost-management practices. The stock has surged 86.9% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 116.4% and 108.3%, respectively. The consensus estimate for the current fiscal-year earnings has been stable over the past 30 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BLDR
The Home Depot: This Atlanta, GA-based home improvement retailer has been gaining from strong demand for home-improvement projects. The company is effectively adapting to the high-demand environment, driven by investments in its business, which includes ramping up assortments and delivery systems. It has been gaining from higher sales to Pro customers. The company is on track with its strategic investments to build a Pro ecosystem that includes professional grade product, exclusive brands, enhanced delivery, field sales support, HD rental and more. This Zacks Rank #2 (Buy) company is working toward boosting omni-channel functions such as curbside-pickup and buy-online pickup-in-store services with convenient pickup lockers. The stock has gained about 38% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 10.1% and 20.5%, respectively. The consensus estimate for the current fiscal-year earnings has improved 0.3% over the past 30 days.
Price and Consensus: HD
Lowe’s Companies: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. Prudent partnerships are helping the company to provide pro customers with a broad range of assortments that suit their specific home improvement and maintenance needs. To continue generating sales from pro customers, the company has been augmenting pro-focused brands. Lowe’s is progressing well with advancements in the digital channel. The company is investing toward enhancing omni-channel retailing capabilities. It completed the installation of Buy Online Pickup in Store touchless lockers across stores. Lowe’s is also gaining traction with the Total Home strategy that includes providing complete solutions for various types of home repair and improvements needs. Impressively, shares of this Zacks Rank #2 company have rallied 43.6% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 3.9% and 27.9%, respectively. The consensus estimate for the current fiscal-year earnings has improved 0.6% over the past 30 days.
Price and Consensus: LOW
Fastenal Company: This Winona, MN-based wholesale distributor of industrial and construction products has been gaining from an increase in the mix of fastener sales. Industrial vending is one of the primary growth drivers for Fastenal. Further, this Zacks Rank #2 company is striving to boost its onsite locations portfolio. The company has also implemented prudent cost control measures to curtail the pressure stemming from rising operating expenses. Fastenal is also working toward expanding its e-commerce presence. Notably, the stock has risen about 29.4% in a year. The Zacks Consensus Estimate for its current fiscal-year sales and earnings indicate growth of 5.2% and 5.4%, respectively. The consensus estimate for the current fiscal-year earnings has improved by a penny over the past 30 days.
Price and Consensus: FAST