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4 Stocks to Capitalize on Strong Demand in Home Appliances Industry

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Rajani Lohia
·9 min read
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Companies in the Zacks Household Appliances industry have been benefiting from the spike in demand for kitchen and home appliances amid the coronavirus pandemic. Consumers are spending more time at home and increasing the budget for home improvement appliances. Additionally, increased demand for Air Purifiers to combat air-borne harmful pathogens is likely to aid demand in the near term. Further, the industry participants stand to gain from the ongoing digital transformation as consumers adopt online shopping for purchasing electronics.

Also, the industry players have been steadfastly investing in product innovation to ease household chores, including cleaning, washing, cooking and more. These investments in the product portfolio and gains from strong demand bode well for players like Whirlpool Corporation (WHR), Electrolux AB (ELUXY), Howden Joinery Group Plc (HWDJY) and AO World plc (AOWDF).

About the Industry

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.

What’s Shaping the Future of the Household Appliances Industry

Solid Product Demand, Shift to E-commerce Trends: The coronavirus pandemic has led consumers to spend more time at home due to restrictions on movement. This has resulted in increased focus on home improvement through higher budgets for cleaning, kitchen and washing appliances. The companies expect this robust demand to continue aiding top lines in the near term. Additionally, a spike in demand for Air Purifiers has been beneficial for the companies in the industry. The pandemic has also driven a shift to consumers’ buying electronics products online. The companies note that this structural shift in shopping preference is likely to stay in the near term, as online demand continues to rise despite the reopening of stores in several regions.

Innovation Drives the Industry: 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 the 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.

Higher Costs Threat to Margins: 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 Bright Prospects

The Household Appliances industry is housed within the broader Zacks Consumer Discretionary sector. It carries a Zacks Industry Rank #100, which places it at the top 39% 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 bright 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 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. In the past year, the industry’s earnings estimate for the current year has moved up 9.6%.

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 outperformed the broader Consumer Discretionary sector and the S&P 500 Index over the past year.

Stocks in this industry have collectively gained 27.8% compared with the S&P 500 composite’s growth of 15.4% over a year’s time. Moreover, the Zacks Consumer Discretionary sector has risen 7.3%.

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 9.13X compared with the S&P 500’s 22.58X. Further, the sector’s forward-12-month P/E ratio stands at 32.2X.

Over the last five years, the industry has traded as high as 11.35X, as low as 5.61X and at the median of 9.26X as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

5 Household Appliances Stocks to Watch

We have two stocks in the Zacks Household Appliances universe that currently sports a Zacks Rank #1 (Strong Buy) and one stock with a Zacks Rank #2 (Buy). We also highlight one stock with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.

Whirlpool Corporation: The Zacks Rank #1 company is one of the largest manufacturers of household appliances in the world. The company, based in Harbor, MI, is benefiting from higher demand for home appliances across several markets as consumers continue to invest in home upgrades with increased stay-at-home practices. Notably, the onset of the pandemic has pushed up at-home dining and cooking practices, as well as increased focus on hygiene, leading to spiked demand for Whirlpool’s kitchen and cleaning appliances product lines. Additionally, the company is gaining from high demand for its HEPA Air Purifiers that are capable of removing nearly 99.97% of particles from the air.

The company’s strong market presence and superior brand image positions it well to capture increasing customer demand for home and kitchen products. It expects the demand trends for home appliances to remain favorable in the forthcoming periods. Moreover, the company has been on track with its cost-curtailment plans to boost margins and enhance liquidity position to navigate through the pandemic induced challenges. Markedly, the company’s stock has rallied 31.9% in the past year. The Zacks Consensus Estimate for its 2020 earnings per share has increased by 42.3% in the past 30 days.

Price and Consensus: WHR

Electrolux AB: The consensus 2020 EPS estimate for this Stockholm, Sweden-based company, which is a leading manufacturer of home appliances worldwide, has moved north by 62.1% in the past 30 days. The company is gaining from consumers’ spending more time at home, which has led to increased use of their appliances more intensively and allocating greater proportion of their household budgets for home improvement. This increase in demand, along with the company’s relentless focus on innovation has led to improved demand for its highly featured products, driving favorable product mix. Shares of this Zacks Rank #1 company have advanced 16% in the past three months.

Price and Consensus: ELUXY

Howden Joinery Group Plc: The London-based company that manufactures and sells kitchens and joinery products in the United Kingdom, France, Belgium, the Netherlands, and Germany, has gained 19% in the past year. The company is poised to gain from the introduction of innovative kitchen ranges. It introduced 13 new kitchen ranges in the first half of 2020, of which 11 were in stock and synchronized with promotional offers.

The company is also expected to benefit from the development of a new digital platform for its website to enhance digital capability and reinforce the Howdens model. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current-year earnings has risen nearly 21% in the past 30 days.

Price and Consensus: HWDJY

AO World plc: The stock of the Bolton, United Kingdom-based online retailer of domestic appliances and consumer electronics, has rallied a whopping 479.2% in the past year. The company, which sells washing machines, fridges, cookers, televisions and mobile phones, has operations in the United Kingdom, Germany, and rest of Europe. It sells products through its websites and third-party websites. The company has been benefiting from the pandemic-led growth in the online shopping trend. It expects this structural shift to online demand to sustain in the future, as consumers have discovered a better way to shop the electronics category.

Notably, the company has witnessed robust online demand for its products and services even after the easing of pandemic-led lockdowns and the reopening of rival stores in July. The Zacks Consensus Estimate for the company’s 2020 EPS has moved north by 28.6% in the past 30 days. The stock carries a Zacks Rank #3.

Price and Consensus: AOWDF

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Whirlpool Corporation (WHR) : Free Stock Analysis Report
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Electrolux AB (ELUXY) : Free Stock Analysis Report
AO WORLD PLC (AOWDF) : Free Stock Analysis Report
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