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, health care, security, government, retail, commercial, education and transportation.
Let’s take a look at the industry’s three major themes:
- The industry is highly sensitive to the strength of the economy. Although a slowing housing market in the United States poses a threat for the industry players, the companies are expected to benefit from a robust job market and the consequent rise in disposable income as well as increasing consumer spending.
- Millennials represents 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 high. Meanwhile, industry players are making investments in new products to improve product mix in a competitive landscape and drive top-line growth.
- However, 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 purchase options. The 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. Especially, increased lumber prices owing to import tariff are putting pressure on margins.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Furniture Industry is grouped within the broader Zacks Consumer Discretionary Sector.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. The Zacks Furniture industry currently carries a Zacks Industry Rank #75, which places it in the top 30% of more than 250 Zacks industries. 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.
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 Lags Sector and S&P 500
The Zacks Furniture industry has lagged the broader Zacks Consumer Discretionary sector as well as the Zacks S&P 500 composite over the past year.
Over this period, the industry has declined 12% versus the broader sector’s growth of 1% and the S&P 500’s rise of 8.7%.
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 13.2X compared with the S&P 500’s 17X and the sector’s 18.3X.
Over the past five years, the industry has traded as high as 19.6X and as low as 10.7X, with the median being 15.3X, as the chart below shows.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Solid economic recovery and a strong labor market along with rising consumer spending should favor the performance of the furniture industry. However, costs associated with continued investments, intense competition and rising raw material costs might keep margins under pressure.
None of the stocks in the Zacks Furniture space currently sports a Zacks Rank #1 (Strong Buy). So, we are presenting two stocks with a Zacks Rank #2 (Buy) and two stocks with a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Sleep Number Corporation (SNBR): Headquartered in Minneapolis, MN, this company, a Zacks Rank #2 stock, provides sleep solutions and services in the United States. The Zacks Consensus Estimate for earnings for the current year indicates year-over-year growth of 25.6%. Estimates for 2019 have witnessed upward revisions of 2.5% in the past 60 days.
Price and Consensus: SNBR
La-Z-Boy Incorporated (LZB): This Monroe, MI-based company is one of the world's leading residential furniture producers. The Zacks Consensus Estimate for earnings for the current year indicates year-over-year growth of 20.4%. This Zacks Rank #2 company’s earnings estimates for 2019 have witnessed upward revisions of 3.3% in the past 60 days.
Price and Consensus: LZB
American Woodmark Corporation (AMWD): Headquartered in Winchester, VA, this company, a Zacks Rank #3 stock, manufactures and distributes kitchen, bath, and home organization products. The consensus EPS estimate for the current year indicates year-over-year growth of 32.6%.
Price and Consensus: AMWD
WillScot Corporation (WSC): Baltimore, MD-based WillScot offers various specialty rental services in the United States, Canada, and Mexico. The consensus EPS estimate for the current year indicates year-over-year growth of 10.5%.
Price and Consensus: WSC
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