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Here's Why Floor & Decor (FND) is Rising Amid Low 2023 Prospect

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The Zacks Building Products – Wood industry is expected to benefit from solid repair and remodel demand and additional funding for infrastructure and carbon/ESG-related projects. Despite soft residential market demand and a challenging macroeconomic and geopolitical environment, Floor & Decor Holdings, Inc. (FND - Free Report) is riding high on business expansion strategies and inorganic moves.

Shares of this hard surface flooring and related accessories retailer have risen 51.2% in the year-to-date period compared with the collective industry's  15.9% growth.

The company strategically invests in expanding its operations by enhancing existing stores, opening new ones and making accretive acquisitions. These efforts allow the company to broaden its reach to new communities and boost its growth momentum.

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FND recently expanded its presence in Manassas, VA, with the inauguration of its new store. This marks the company’s seventh store in the DMV Metropolitan Area. Also, Floor & Decor announced its debut location in Avenel, marking its 11th store opening in the New York City Metropolitan Area.

In November, the company opened a new store location in Ocean Township, NJ. In October, it announced the opening of two new warehouse store and design center locations. In Pennsylvania, the company opened its fourth store in Springfield Township. On the other hand, it unveiled its ninth store at Nanuet, in the New York City Metropolitan Area.

In the first nine months of 2023, the company opened 22 new warehouse stores, with a total count of 207 warehouse stores and five design studios at the end of the third quarter. It plans to open about 32 warehouse-format stores in fiscal 2023.

Along with store expansion, FND is committed to investing in associates and remodeling and enhancing existing stores. In the third quarter of 2023, the company closed an older warehouse store in Houston, strategically replacing stores in the surrounding market as the lease expired.

However, due to industry-wide construction delays, some late September 2023 warehouse store openings were pushed to the fourth quarter. These delays resulted from general contractors struggling to secure qualified subcontractors and local government municipalities remaining understaffed, particularly in the Northeast.

Rising mortgage interest rates and low existing home sales are creating hurdles for Floor & Decor. For 2023, the company expects capital expenditures to be between $550 million and $575 million, down from the previous guidance of $590-$630 million. This is expected to add flexibility to its 2024 new warehouse store openings.

For 2023, FND’s earnings are expected to decline 19.6% to $2.22 per share from $2.76 a year ago. Nonetheless, its 2024 earnings of $2.24 per share are likely to improve slightly, moving upward in the past 30 days.

The company anticipates continuing its New York expansion with a new warehouse store in Brooklyn. By focusing on improving customer services, investing in new and existing stores, and managing profitability efficiently, it has been able to survive in this uncertain economy.

Zacks Rank & Key Picks

FND currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks that warrant a look in the Zacks Construction sector are Frontdoor, Inc. (FTDR - Free Report) , Knife River Corporation (KNF - Free Report) and James Hardie Industries plc (JHX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Frontdoor: Based in Memphis, TN, the company provides home service plans in the United States. The company is benefiting from impressive customer retention rates. Thanks to the robust awareness of the Frontdoor brand, it has been shifting its attention toward capitalizing on customer demand. This strategic move allows FTDR to redirect its marketing investments toward expanding its Direct-to-Consumer channel under the American Home Shield brand. Looking ahead, the company is committed to establishing a solid foundation by investing in its brand and technology infrastructure, and enhancing productivity throughout the organization.

Frontdoor has seen an upward earnings estimate revision of 23% and 23.8% for 2023 and 2024, respectively, over the past 60 days to $2.03 and $2.34 per share. The estimated figure indicates 59.8% and 15.1% year-over-year growth for 2023 and 2024, respectively. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 163.7%.

Knife River: Headquartered in Bismarck, ND, this firm offers construction materials and contracting services throughout the United States, specializing in aggregates-based solutions. Knife River has effectively implemented its EDGE plan to enhance Adjusted EBITDA margins and achieve strategic objectives. A crucial component of this strategy involves optimizing pricing to fully capture the value of core products, including aggregates, ready-mix concrete, asphalt and contracting services. The company has adopted a more judicious approach in selecting higher-margin projects within its contracting services division. Despite challenges, Knife River maintains a positive outlook on its long-term market strength, anticipating favorable impacts from local, state and federal funding.

Knife River has seen an upward earnings estimate revision of 30.2% for 2023 over the past 60 days to $3.15 per share. The company’s earnings surpassed the Zacks Consensus Estimate in the last reported quarter by 41%.

James Hardie Industries: The company pioneered the development of fiber cement technology in the 1980s. JHX has many product applications, including external siding, trim and fascia, ceiling lining and flooring, partitioning, decorative columns, fencing and drainage pipes.

JHX has seen an upward earnings estimate revision of 0.6% and 1.2% for fiscal 2024 and 2025, respectively, over the past seven days to $1.58 per share and $1.66 per share. The estimated figures indicate 16.2% and 5.1% year-over-year growth for fiscal 2024 and 2025, respectively.

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