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Zacks Industry Outlook Highlights: Mohawk Industries, Culp and Select Interior Concepts

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·8 min read
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For Immediate Release

Chicago, IL – March 26, 2021 – Today, Zacks Equity Research discusses Textile - Home Furnishings, including Mohawk Industries, Inc. MHK, Culp, Inc. CULP and Select Interior Concepts, Inc. SIC.

Link: https://www.zacks.com/commentary/1293649/textile-home-furnishing-industry-looks-great-3-stocks-to-watch

Although COVID-induced supply chain disruptions, rising raw material costs, and higher  transportation and labor expenses continue to build pressure on margins for companies in the Zacks Textile-Home Furnishing industry, improving housing market fundamentals, efficient cost management and continued focus on product innovation have been driving the same.

Companies like Mohawk IndustriesCulp and Select Interior Concepts have been benefiting from strong end market demand, acquisitions and strategic initiatives to improve profitability.

Industry Description

The Zacks Textile-Home Furnishing industry comprises manufacturers, designers, distributors and marketers of flooring, carpet and upholstery products. The products include carpets, rugs, ceramic tile, laminate, wood, stone and vinyl flooring. The industry participants sell their products through a network of independently commissioned sales representatives, including distributors, retailers, wholesalers, specialty stores and home centers, in the United States and worldwide.

4 Trends Shaping the Future of Textile-Home Furnishing Industry

Robust Housing & Repair & Remodeling Market: Solid momentum of the U.S. housing market, backed by rising need for more work-at-home space and historically-low mortgage rates, is expected to be a major tailwind for industry participants. Strong demand stemming from an improved residential construction market is a major boon for industry participants.

Meanwhile, the work from home or stay-at-home orders amid the COVID-19 pandemic have encouraged consumers to take on more do-it-yourself or DIY projects and other home improvement projects. So, the industry stands to benefit from the strong rise in repair and remodeling activity.

Product Innovation & Acquisitions: The industry participants have been drumming up sales with product innovation and expanded distribution in a highly competitive market. Companies are trying hard to offset higher costs by raising prices, expanding in growing channels and foraying into new product categories and geographies. Moreover, the players are pursuing acquisitions to broaden their product portfolio and expand geographic footprint as well as market share.

COVID-19 Impact: Although the demand trend has improved on the back of robust U.S. housing market fundamentals and repair & remodeling activities, the industry players have been bearing the brunt of the pandemic in the form of supply chains disruptions. The companies have been experiencing rising raw material costs in many of its product categories.

Rising Costs, Tight Labor Market & Intense Competition: Rising cost of raw material and transportation, a stronger dollar, and a tight labor market are eating into profit margins. Significant investments in new products, distribution network and manufacturing facilities in a highly competitive landscape raise concerns.

Moreover, the introduction of tariffs on Chinese imports by the Trump administration and retaliatory tariffs on exports spell trouble for the industry. This is because higher tariffs make sourcing difficult for home furnishing manufacturers, pushing up costs.

Zacks Industry Rank Indicates Bullish Prospects

The Zacks Textile-Home Furnishing industry is a five-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #110, which places it in the top 43% 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 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 January 2021, the industry’s earnings estimates for 2021 and 2022 have been revised 10.8% and 12.3% upward, respectively.

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 & S&P 500

The Zacks Textile-Home Furnishing industry has outperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 composite over the past year.

Stocks in this industry have collectively gained 117% versus the broader sector’s growth of 62.9%. Meanwhile, the S&P 500 has climbed 50.8% in the same period.

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings, which is a commonly used multiple for valuing these stocks, the industry is currently trading at 13.1X versus the S&P 500’s 22.1X and the sector’s 34.2X.

Over the past five years, the industry has traded as high as 19.4X, as low as 6.9X and at the median of 12.6X.

3 Textile-Home Furnishing Stocks to Keep a Close Eye on

Mohawk Industries: This Calhoun, GA-based company is a leading supplier of flooring for both residential and commercial applications. Solid U.S. housing market and repair & remodeling activities have been benefiting Mohawk.

Its dominant market share in the highly fragmented and competitive industry, acquisition strategy and strong international presence are expected to drive growth. It has been streamlining operations, merging facilities and removing higher-cost assets to combat cost woes.

The stock has gained 125.3% over the past year compared with the industry’s 117% rally. This Zacks Rank #2 (Buy) company’s 2021 and 2022 earnings are expected to register growth of 35.5% and 11.2%, respectively.

Meanwhile, its 2021 and 2022 earnings estimates have moved 14.6% higher each over the past 60 days, reflecting optimism in the company’s earnings growth potential. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Select Interior Concepts: Headquartered in Anaheim, CA, this company installs and distributes interior building products for residential interior design services markets. It has been gaining strength from strong demand in its key end-markets despite uncertainty created by the COVID-19 pandemic.

Also, the company’s initiatives to drive incremental EBITDA from untapped potential within its existing footprint are encouraging.  Most importantly, it has been looking into opportunities in strategic sourcing, organizational design and productivity, insurance programs, and facility footprint optimization that will drive long-term growth.

This Zacks Rank #2 company has gained 168% over the past year. The Zacks Consensus Estimate for its 2021 and 2022 earnings have increased 2.9% and 5%, respectively, over the past 30 days. Earnings for 2021 and 2022 are expected to grow 192.3% and 75%, respectively.

Culp: Headquartered in High Point, NC, the company manufactures, sources, markets and sells mattress fabrics and upholstery fabrics. Both its Mattress Fabrics and Upholstery Fabrics segments have been witnessing increase in orders and shipments.

It has been investing in additional equipment to expand capacity in North America. Strength and flexibility of its global manufacturing and sourcing operations in the United States, Canada, Haiti, Asia, and Turkey will strengthen its position to execute strategies and support the current environment surrounding the changing demands of customers.

This Zacks Rank #3 (Hold) company’s earnings for the current year are expected to reflect the COVID-related woes. Earnings for 2021 are expected to grow 4.8%. That said, its earnings are expected to grow 195.5% next year. The company has gained 92.6% in the past six months.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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