Many times investors become fixated on a big name company and or a new flashy company that is expected to produce the next must have gadget, but this mode of identifying investments misses out on many other opportunities. They tend to miss out on some of the boring companies, and miss that one company that has decreased their costs, and has pushed innovation within their unassuming sector.
There isn’t much that is more boring than office furniture, but if you look at any skyscraper or a large office building, you will realize it is full of furniture. And when an office buys furniture, they buy a lot of desks, chairs, and other office items. This brings us to HNI Corp (HNI - Snapshot Report) , the Zacks Bull of the Day.
This Zacks Rank #1 (Strong Buy) company has two reportable core operating segments: office furniture and hearth products. They are the second largest office furniture manufacturer in the United States and the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces.
Recent Earnings Results & Increased Guidance
In their first quarter of 2016, HNI saw year over year gains (on a GAAP basis) in Gross profit +190 bps, Operating income +26.6%, and EPS diluted +36.8%.
According to Stan Askren, Chairman and CEO, “We delivered very strong results which exceeded our expectations for the first quarter. Operating margins increased in both our office furniture and hearth products segments driven by strong operational execution. We continue to compete well in our markets and are focused on driving long-term shareholder value.”
Because of the strong earnings results, on June 10 management increased earnings guidance for Q2 16, and FY 16; Q2 16 estimates changed from a range of $0.54 to $0.59 to a range of $0.62 to $0.67. FY 16 estimates improved from a range of $2.40 to $2.70 to a range of $2.70 to $2.90.
Stan Askren, CEO commented on the updated guidance stating, “We expect to deliver better than projected earnings driven by outstanding operational execution, material and operations productivity, and strong returns on prior investments. Our businesses are competing well and are positioned to deliver significant long-term profitable growth.”
As you can see from the price and earnings consensus graph below, HNI has shown a consistent upwards trend over the past several years.
Due to the strong earnings results and subsequent increased guidance, earnings estimates have increased in just the past 7 days for Q2 16, Q3 16, FY 16 and FY 17; Q2 16 improved from $0.56 to $0.61, Q3 16 rose from $0.83 to $0.87, FY 16 jumped up from $2.58 to $2.82, and FY 17 improved from $3.09 to $3.17.
While furniture is boring to most, HNI has been innovating the feel of the office environment which has shown to increase employee satisfaction, improve recruitment, and retain talent. Further, HNI has been integrating technology into office furniture with tailored work stations, and trackable shared space. Lastly, with management’s recent earnings upgrades, commitment to cost savings, and streamlining of operations HNI is on the right track for current and future growth.
Now, which stocks should you sell?
As a Zacks Rank #1 Strong Buy, this Bull of the Day deserves consideration. But today there are 220 Zacks Rank #5 Strong Sells that demand even more urgent attention. If any of these are lurking in your portfolio, they should be removed immediately. Since 1988, such stocks have actually performed more than 11X worse than the S&P 500.
See all Zacks Strong Sells and Strong Buys absolutely free >>.
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