Furniture Industry's Near-Term Prospects Look Great
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:
- Improved housing market fundamentals in the United States makes the near-term outlook for furniture industry encouraging. The recent decline in mortgage rates has been driving new home sales, which in turn, should provide a modest spike in demand for furniture products in the near term.
- Moreover, product innovation plays a key decisive factor for market share gain in this industry. Players are investing in new products to improve product mix in a competitive landscape and drive top-line growth. Also, 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 elevated. Also, customer experience is getting enhanced by innovative marketing techniques, with emphasis on digital marketing, better merchandising, store remodeling and loyalty programs.
- However, the industry is highly sensitive to the condition of the economy. As the coronavirus outbreak has disrupted business activities, global supply chains and international trade, the industry participants are expected to face the brunt of high unemployment level. Additionally, economic uncertainties amid renewed fears of a second wave of the virus may tarnish the furniture industry’s prospects. Also, 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 key causes for concern.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Furniture industry is a six-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #3, which places it at the top 1% 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 lucrative 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 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 June 2020, the industry’s earnings estimates for 2020 and 2021 have been revised 59.8% and 27.4%, respectively, upward.
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 Outperforms Sector, Lags S&P 500
The Zacks Furniture industry has outperformed the broader Zacks Consumer Discretionary sector but underperformed the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 10.7% compared with the S&P 500’s increase of 20.3% and the broader sector’s 8.5% growth.
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 14.7X compared with the S&P 500’s 23X and the sector’s 34.3X.
Over the past five years, the industry has traded as high as 17.6X and as low as 9.4X, with the median being 15.3X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Although new spikes in COVID-19 cases, continued investments in e-commerce and intense competition might keep margins under pressure, the reopening of the economy and an improved housing market scenario in the United States should favor the furniture industry. Additionally, efficient cost management and continued focus on product innovation may support growth.
Here we present five stocks from the Zacks universe of furniture stocks, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy), and are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Sleep Number Corporation (SNBR): Headquartered in Minneapolis, MN, this Zacks Rank #1 stock provides sleep solutions and services in the United States. The company has a three-five year expected earnings growth rate of 10.1%.
Price and Consensus: SNBR
American Woodmark Corporation (AMWD): Headquartered in Winchester, VA, this Zacks Rank #1 company manufactures and distributes kitchen, bath and home organization products. Earnings estimates for 2020 have witnessed upward revisions of 67.7% in the past 60 days.
Price and Consensus: AMWD
La-Z-Boy Incorporated (LZB): Based in Monroe, MI, this Zacks Rank #1 company manufactures, markets, imports, exports, distributes, and retails upholstery furniture products, accessories, and casegoods furniture products. Earnings estimates for 2020 have witnessed upward revisions of 67.9% in the past seven days.
Price and Consensus: LZB
WillScot Corporation (WSC): Headquartered in Baltimore, MD, this company provides various modular space and portable storage solutions in the United States, Canada and Mexico. Earnings estimates for 2020 have witnessed upward revisions of 41.5% in the past 30 days. This Zacks Rank #2 company has a three-five year expected EPS growth rate of 27.8%.
Price and Consensus: WSC
Leggett & Platt, Incorporated (LEG): This Carthage, MO-based company designs and produces various engineered components and products worldwide. This Zacks Rank #2 company’s earnings estimates for 2020 have witnessed upward revisions of 43.9% in the past 30 days. The company has a three-five year expected EPS growth rate of 13%.
Price and Consensus: LEG
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WillScot Corporation (WSC): Free Stock Analysis Report
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