The Household Appliances industry comprises companies that manufacture and market home appliances and other related products. Household or domestic appliances include electrical and mechanical devices that facilitate chores like cooking, cleaning, laundry or food preservation.
Companies in this industry make refrigerators, washing machines, water coolers and heaters, microwave ovens, toasters and coffee makers, among other devices. These companies sell products through a network of mass merchandisers, retailers, distributors, dealers, and other builders and outlets. In an era of automation, players in the industry are committed to constant technological enhancements to offer smart home appliances, for instance, voice-activated and hands-free devices.
Let’s take a look at the industry’s three major themes:
- The rising concern over airborne diseases, amid the coronavirus pandemic, has led to a spike in demand for air purifiers. With the outbreak of coronavirus, people are investing in air purifiers, which are one way to shield oneself against the disease, along with other proper precautions. According to the United States Environmental Protection Agency, air purifiers can diminish airborne contaminants which comprise viruses in any confined space. In fact, demand for air purifiers has gone up in the United States in the past few months. Home Appliances leader, Whirlpool Corp. (WHR - Free Report) is poised to gain from this trend, due to the increasing popularity of its HEPA Air Purifier, which is capable of removing as much as 99.97% of particles from the air. According to a report by Research and Markets, the global air purifiers market is expected to reach $1.86 billion in 2023 at a CAGR of 6.13% from $1.55 billion this year, and a CAGR of 20.74% from $1.29 billion in 2019.
- Increased technological advancements, rapid urbanization, rise in income, improved living standards, change in consumer lifestyle and surge in need for household comfort are the key factors driving the industry. Demand for fast-accessible and remotely monitored home appliances has been consistently rising, thanks to tech-savvy consumers. This compels industry players to invest in innovation and R&D to come up with differentiated and handy products. These companies are also committed toward manufacturing appliances that are a one-stop solution for major household tasks. Additionally, appliance makers are installing smart grids, thermostats, digital inverter compressors and other monitoring sensors to make devices more energy-efficient. As a result, household appliances are becoming more high-tech, embedded with smart sensors and IoT-enabled technology. Such rampant innovation can significantly boost companies’ top lines. Meanwhile, the industry players are resorting to pricing actions and cost-productivity programs to boost margins and profitability.
- Although regular technological upgrade is a major survival strategy in the industry, higher spending on technology and innovation has been eating into companies’ margins and profits. Freight cost inflation is an added concern. Prices for raw materials like steel and aluminum, which form the base metals for these companies, remain volatile. Also, volatility in oil, plastic or other secondary raw material prices is a concern. These expenses have been bumping up operational costs year over year, eroding companies’ profits. Additionally, the global coronavirus menace has dented demand and supply across all industries and continents. With most household appliances’ producers having operations across the continents, the impact of the outbreak is likely to get reflected in the near-term results.
Zacks Industry Rank Indicates Bleak Prospects
The Household Appliances industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #210, which places it at the bottom 16% 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 dull prospects in the near term. 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 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. In the past year, the industry’s earnings estimate for the current year has gone down 53.6%.
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 vs. Broader Market
The Zacks Household Appliances industry has underperformed the broader Consumer Discretionary sector and the S&P 500 index over the past year.
Stocks in this industry have collectively declined 13% against the S&P 500 composite’s growth of 5.6% over a year’s time. Meanwhile, the Zacks Consumer Discretionary sector has seen a decline of 8.2%.
One-Year Price Performance
Household Appliances Industry’s Valuation
On the basis of forward 12-month price-to-earnings (P/E) ratio, a commonly used multiple for valuing Consumer Discretionary stocks, the industry is currently trading at 10.42X compared with the S&P 500’s 22.36X. Further, the sector’s forward-12-month P/E ratio stands at 33.27X.
Over the last five years, the industry has traded as high as 11.87X, as low as 6.37X and at the median of 9.73X as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
The coronavirus outbreak has done more damage than good to world markets. However, the virus spread has made air purifiers more popular, given their ability to remove harmful pathogens from the air. The spike in demand for air purifiers is likely to aid the home appliances market in the near term. However, higher cost of investments in technological advancements and product development has been a constant source of increased costs for the industry players. Additionally, the industry is struggling as the virus spread has impacted global trade with supply chain disruptions for raw materials and other products.
None of the stocks in the Zacks Household Appliances universe currently sports a Zacks Rank #1 (Strong Buy) or 2 (Buy). But we highlight three stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hamilton Beach Brands Holding Company (HBB - Free Report) : This Glen Allen, VA-based marketer and distributor of small electric household and specialty housewares appliances, has gained 8.8% in the past three months. Further, the Zacks Consensus Estimate for its 2020 earnings per share has remained unchanged in the past 30 days. It currently carries a Zacks Rank #3.
Price and Consensus: HBB
Haier Electronics Group Co. (HRELY - Free Report) : This Hong Kong-based investment holding company engages in the R&D, production and sale of washing machines and water heaters under the brand name of Haier, Casarte and Leader. The company has operations in Mainland China and internationally. The company has gained 7.2% in the past year. The Zacks Consensus Estimate for this Zacks Rank #3 company’s current-year earnings has been steady in the past 30 days.
Price and Consensus: HRELY
Electrolux AB (ELUXY - Free Report) : The consensus estimate for current-year earnings of this Stockholm-based company that manufactures and sells household appliances has been stable in the past seven days. This Zacks Rank #3 company has advanced 27.4% in the past three months.
Price and Consensus: ELUXY