The prospects of the home improvement industry appear promising thanks to the growing focus of homeowners on enhancing the value of their properties and aging infrastructure nationwide. Furthermore, the industry’s growth will be driven by smart technology adoption, eco-friendly practices, and an emphasis on multi-functional spaces.

Given the industry’s rosy outlook, it could be wise to buy fundamentally sound home improvement stocks HNI Corporation (HNI), Tile Shop Holdings, Inc. (TTSH), and Acuity Brands, Inc. (AYI) for solid returns.

Fueled by changing consumer lifestyles that prioritize safety and enhanced security features, advancements in technology, and the growing emphasis on sustainable living, the home remodeling industry is growing faster than ever. The U.S. residential remodeling market is expected to reach $754.75 million by 2032, exhibiting a CAGR of 4.3% during the forecast period (2024-2032).

Most of the U.S. housing stock is aging, creating opportunities for home improvement projects aimed at updating and modernizing these properties. With advances in technology and enhanced focus on sustainable building practices, demand for energy-efficient and environmentally friendly remodeling projects is on the rise, propelling the industry’s prospects.

In addition, favorable government initiatives, including tax credits or deductions for energy-efficient home improvements like installing solar panels and upgrading insulation, will boost the home improvement industry’s profitability.

The latest smart home statistics show that nearly 69.91 million households in the U.S. are actively using smart home devices in 2024. That is about 10.2% more than recorded in 2023. By 2028, more than 100 million households nationwide will likely use smart devices in the U.S.

In recent times, there has been an increased interest in do-it-yourself (DIY) interior designing globally. The DIY home improvement market is estimated to be $800.29 billion in 2024 and is expected to reach $946.47 billion by 2029, growing at a CAGR of 3.4% during the forecast period (2024-2029).

Given the industry’s encouraging prospects, let’s look at the fundamentals of the three best Home Improvement & Goods stocks, beginning with the third choice.

Stock #3: HNI Corporation (HNI)

HNI manufactures, sells, and markets workplace furnishings and residential building products internationally. It operates through two segments: Workplace Furnishings and Residential Building Products. It offers a range of commercial and home office furniture and provides various gas, wood, electric, and pellet-fueled fireplaces.

On February 13, 2024, HNI’s Board of Directors announced a quarterly dividend of $0.32 per share on its common stock. The dividend will be payable on March 6, 2024, to shareholders of record at the close of business on February 26, 2024.

HNI pays an annual dividend of $1.28, which translates to a yield of 2.94% at the current share price. Its four-year average dividend yield is 3.73%. Moreover, the company has raised its dividends for 13 consecutive years.

In June 2023, HNI completed the acquisition of Kimball International, Inc., a commercial furnishings leader with expertise in workplace, health, and hospitality. This strategic acquisition will bring together two strong, successful companies with similar cultures and well-established families of brands.

The combination is expected to create a market leader with proforma revenue of around $3 billion and a combined EBITDA of nearly $305 million, including $25 million of synergies to be fully recognized within three years of closing.

In terms of forward non-GAAP P/E, HNI is trading at 17.71x, 7.9% lower than the industry average of 19.24x. Also, the stock’s forward non-GAAP PEG multiple of 1.48 is 17% lower than the industry average of 1.78. Its forward EV/EBITDA of 10.44x is 12.5% lower than the industry average of 11.93x.

HNI’s trailing-12-month gross profit margin of 38.39% is 26.1% higher than the respective industry averages of 30.45%. Likewise, the stock’s trailing-12-month ROTC of 8% is 16.8% higher than the industry average of 6.85%.

HNI’s net sales grew 18.8% year-over-year to $711.60 million for the third quarter that ended September 30, 2023. The company’s non-GAAP gross profit increased 34.1% from the year-ago value to $285.60 million. Also, its non-GAAP operating income came in at $65.20 million, up 61.2% from the prior year’s quarter.

Furthermore, HNI’s non-GAAP EPS increased 31% year-over-year to $0.93. Its total assets came in at $2.01 billion as of September 30, 2023, compared to $1.41 billion as of December 31, 2022.

Street expects HNI’s revenue for the fourth quarter (ended December 2023) to increase 20.4% year-over-year to $684.85 million. Its EPS is expected to grow 31% year-over-year to $0.83 for the same period. Also, the company surpassed the consensus EPS estimates in all four trailing quarters, which is impressive.

Over the past six months, HNI’s stock has surged 35.7% and 39.2% over the past year to close the last trading session at $43.53.

HNI’s robust outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

The stock has an A grade for Growth and Sentiment. It also has a B grade for Quality and Momentum. Within the B-rated Home Improvement & Goods industry, HNI is ranked #8 of 56 stocks.

Click here to access additional ratings of HNI for Value and Stability.

Stock #2: Tile Shop Holdings, Inc. (TTSH)

TTSH is a specialty retailer of natural stone and man-made tiles, setting and maintenance materials, and related accessories. The company offers natural stone products, such as marble, granite, and quartz, and man-made products, including ceramic, porcelain, glass, cement, and metal and luxury vinyl tiles primarily under the Rush River and Fired Earth brands.

On December 14, 2023, TTSH announced its partnership with interior designer and real estate developer Kelli Fontana on the “Classic, Bold and Whimsical” debut tile collection. The collaboration marks Fontana’s first foray into the tile space. The partnership will complement the company’s portfolio.

“We love collaborating with designers, and Kelli has a unique perspective that we’re so excited to share with our customers. Kelli’s tiles bring something totally new to our product selection, and we can’t wait to see the beautiful spaces they’ll make possible. They reflect elevated living at an accessible price point,” said Kirsty Froelich, Tile Shop’s director of design.

TTSH’s trailing-12-month gross profit margin and levered FCF margin of 64.41% and 7.94% are 81.2% and 38.3% higher than the respective industry averages of 35.55% and 5.74%. Also, the stock’s trailing-12-month CAPEX/Sales of 3.88% is higher than the industry average of 3.01%.

For the third quarter that ended September 30, 2023, TTSH reported net sales of $92.11 million, and its gross profit was $59.56 million. Its net income for the quarter came in at $1.84 million, or $0.04 per share, respectively. The company’s cash and cash equivalents stood at $16.37 million as of September 30, 2023, versus $5.95 million as of December 31, 2022.

Analysts expect TTSH’s revenue and EPS for the first quarter (ending March 2024) to increase 0.9% and 16.7% year-over-year to $102.94 million and $0.07, respectively. For the fiscal year 2024, the company’s revenue is expected to grow 1.9% year-over-year to $389.55 million.

TTSH’s stock gained 16.2% over the past six months and 17.4% over the past year to close the last trading session at $6.88.

TTSH’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

TTSH has an A grade for Quality. The stock is ranked #7 out of 56 stocks within the same industry.

In addition to the POWR Ratings we’ve stated above, we also have TTSH ratings for Sentiment, Stability, Momentum, Growth, and Value. Get all TTSH ratings here.

Stock #1: Acuity Brands, Inc. (AYI)

AYI offers lighting, lighting controls, building management systems, and location-aware applications worldwide. It operates in two segments: Acuity Brands Lighting and Lighting Controls (ABL) and the Intelligent Spaces Group (ISG). Its brands include A-Light, Aculux, American Electric Lighting, Cyclone, Dark to Light, eldoLED, Eureka, and Gotham.

On January 30, 2024, AYI’s brand Gotham Lighting, an established innovator and manufacturer of architectural downlighting, announced the IVO™ Shallow Recessed downlight, the first luminaire from the new IVO family. The IVO Shallow Recessed downlight addresses space limitations, fitting into spaces as shallow as 2 inches while delivering exceptional performance.

The IVO™ Shallow Recessed downlight is ideal for both new construction and remodel projects with simple installation. It also reflects Gotham’s commitment to sustainability and eco-friendly approach.

On January 25, AYI’s Board of Directors increased its quarterly dividend by 15% to 15 cents per share ($0.15) from 13 cents per share ($0.13). The dividend was paid on February 14, 2024, to shareholders of record on February 5, 2024. The dividend increase reflects the company’s robust capital structure and its ability to provide stable growth in the long run.

AYI pays an annual dividend of $0.60, which translates to a yield of 0.25% at the current share price. Its four-year average dividend yield is 0.35%. Moreover, the company’s dividend payouts have increased at a CAGR of 10.5% over the past three years. HOFT has raised its dividends for eight consecutive years.

Also, on the same day, the Board of AYI authorized the additional repurchase of up to 3 million shares of common stock, which brings the outstanding authorization to approximately 3.9 million shares.

In the fiscal 2024 first quarter that ended on November 30, 2023, AYI reported net sales of $934.70 million. Its gross profit increased 2.9% year-over-year to $428.40 million. The company’s adjusted operating profit came in at $153.90 million, up 9.9% from the prior year’s quarter. It generated around $190 million in cash flow from operations.

In addition, the company’s adjusted net income and adjusted EPS were $116.80 million and $3.72, increases of 8.6% and 13.1%year-over-year, respectively. Its adjusted EBITDA of $166.70 million indicates growth of 8.9% from the prior year’s quarter.

Street expects AYI’s revenue and EPS for the fourth quarter (ending August 2024) to increase 3% and 2.5% year-over-year to $1.4 billion and $4.07, respectively. Furthermore, the company has topped the consensus EPS estimates in each of the four trailing quarters.

Shares of AYI have surged 51.5% over the past six months and 24.2% over the past year to close the last trading session at $240.17.

AYI’s bright prospects are reflected in its POWR Ratings. The stock has an overall grade of B, which equates to a Buy in our proprietary rating system.

AYI has an A grade for Quality. The stock has a B grade for Sentiment and Value. It is ranked #6 among 56 stocks within the B-rated Home Improvement & Goods industry.

Other ratings for AYI of Growth, Momentum, and Stability are also provided; click here to check.

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AYI shares were unchanged in premarket trading Tuesday. Year-to-date, AYI has gained 17.33%, versus a 5.09% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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