The Zacks Furniture industry comprises manufacturers, designers and marketers of residential and commercial furnishings solutions. Some of the companies provide kitchen and bath cabinets as well as various engineered components and products in the United States and 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.
Let’s take a look at the industry’s three major themes:
- Increasing consumer spending combined with a solid job market makes the near-term outlook for furniture industry encouraging. Meanwhile, rise in disposable income along with improved housing market fundamentals in the United States should keep the momentum alive.
- 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 high. Meanwhile, product innovation plays a key decisive factor for market share gain in this industry. Players are making investments in new products to improve product mix in a competitive landscape and drive top-line growth.
- However, the furniture industry is highly competitive with home furnishing retailers, department stores and antique dealers giving a hard time. Again, companies need to continuously address a deteriorating omni-channel environment as shoppers tend to look for online options. Growth in online sales will continue to dent traditional retailers’ market share as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the furniture market. Meanwhile, furniture companies are also distressed by rising raw material and labor costs. The U.S.-China trade war and volatility in lumber prices are the key causes for concern.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Furniture industry is an eight-stock group within the broader Zacks Consumer Discretionary Sector.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. The Zacks Furniture industry currently carries a Zacks Industry Rank #32, which places it in the top 13% of more than 250 Zacks industries. 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 August 2019, the industry’s earnings estimates for 2020 have been revised 2.1% upward.
Given the solid near-term prospects, we will present a few stocks that can be bought or retained, considering their robust growth endeavors. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms Sector and S&P 500
The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector as well as the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 38.2% versus the broader sector’s and S&P 500’s growth of 21.8% and 23.4%, respectively.
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 14.5X compared with the S&P 500’s 18.3X and the sector’s 19.8X.
Over the past five years, the industry has traded as high as 19.6X and as low as 10.7X, with the median being 14.8X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
A resilient economy and a strong labor market along with rising consumer spending should favor the performance of the furniture industry. Additionally, an improved housing market scenario in the United States may support growth. However, costs associated with continued investments, intense competition and trade-related woes might keep margins under pressure.
Currently, there are two top-ranked stocks in the Zacks Furniture industry that are cashing in on the solid industry fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Leggett & Platt, Incorporated (LEG - Free Report) : This Carthage, MO-based company designs and produces various engineered components and products worldwide. Estimates for this Zacks Rank #2 (Buy) company’s 2020 earnings per share have witnessed upward revisions of 3.8% in the past 60 days. The company has a three-five year expected EPS growth rate of 13%.
Price and Consensus: LEG
American Woodmark Corporation (AMWD - Free Report) : Headquartered in Winchester, VA, this company, a Zacks Rank #2 stock, manufactures and distributes kitchen, bath and home organization products. Earnings estimates for 2020 have witnessed upward revisions of 1.2% in the past 30 days. The company has a three-five year expected EPS growth rate of 9%.
Price and Consensus: AMWD
Investors may also hold on to the following three stocks, which currently carry a Zacks Rank #3 (Hold) and have solid earnings growth prospects.
Bassett Furniture Industries, Incorporated (BSET - Free Report) : This Bassett, VA-based company manufactures, markets, and retails home furnishings in the United States and internationally. The Zacks Consensus Estimate for earnings for 2020 indicates year-over-year growth of 102.1%.
Price and Consensus: BSET
Masonite International Corporation (DOOR - Free Report) : This Tampa, FL-based company is a designer and manufacturer of interior and exterior doors. Earnings for 2020 are expected to increase 27.4%.
Price and Consensus: DOOR
WillScot Corporation (WSC - Free Report) : Headquartered in Baltimore, MD, this company provides various modular space and portable storage solutions in the United States, Canada and Mexico. Earnings for 2020 are expected to increase 3,537.5%.
Price and Consensus: WSC