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5 Retail Building Products Stocks Ready to Gain From Industry Upswing
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Participants in the Zacks Building Products – Retail industry are poised to benefit from technological initiatives to enhance the e-commerce experience. Companies are bolstering their digital ecosystems, offering superior online assortments and enhancing omni-channel capabilities. Industry players are also gaining from strategic acquisitions, supply-chain expansion and digital advancements. Ongoing innovation and growth in e-commerce are expected to support companies like The Home Depot Inc. (HD - Free Report) , Lowe's Companies (LOW - Free Report) , Fastenal Company (FAST - Free Report) , Beacon Roofing Supply (BECN - Free Report) and Tecnoglass (TGLS - Free Report) .
However, the housing and home improvement industry is navigating a challenging landscape, marked by broad-based pressures affecting the performance of industry players. These pressures primarily stem from a softening in consumer demand, especially in high-ticket, discretionary categories. Severe constraints related to inflation, a deflation in lumber prices, and product and transportation cost inflation are worrisome.
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceiling systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, and lawn and garden decor products. Some players deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products - Retail Industry
Digitization & Acquisitions in Focus: Retail Building Products companies have seen a surge in online transactions due to consumers' increasing reliance on digital platforms. This shift toward virtual engagement has boosted top-line growth for many in the industry. In response, companies are enhancing their digital presence by expanding online assortments and strengthening omni-channel capabilities to meet rising demand. To ensure safe and swift service, companies in the industry are also ramping up their delivery operations. The ongoing boom in digital transactions is expected to continue driving revenue growth for the industry players. Acquisitions remain a key growth strategy, with some companies exploring opportunities to expand geographically and improve organic revenues.
Do-It-Yourself (DIY) & Pro Projects: Despite a slowdown in the spending trends, the demand for revamping interiors and repair-remodel creates opportunities for the industry players. DIY projects for decorating and maintaining furniture and fixtures are being widely undertaken. Additionally, consumers are open to hiring professionals (“Pros”) to complete their home renovations, resulting in rising demand for Pro projects. Companies note that Pro backlogs continue to be healthy and elevated. This is likely to aid participants in the home improvement space, with a focus on building Pro offerings.
Soft Trends in Housing & Home Improvement Industry: The home improvement industry has been witnessing widespread pressures on softened customer demand in certain big-ticket, discretionary categories. The high-interest-rate environment since the beginning of 2024 has pressured the demand for larger projects. Inflationary pressures, especially lumber prices, have affected the financial performance of companies in the industry in recent quarters. The recent signs of weakness in the housing market are major concerns due to the heavy dependence of the building products industry on the housing market. Current trends indicate sluggish home sales, elevated prices and high mortgage rates are hurting the performance of the industry participants.
Rising Costs: Inflationary pressures, especially increasing input costs, are concerning for companies in the home improvement industry, as they could squeeze profit margins. Additionally, declining lumber prices may negatively impact the performance of companies in the industry. Some industry participants have adopted a cautious outlook for 2024, citing expectations of reduced consumer spending, normalized transaction levels and ongoing investments aimed at gaining market share. The industry is anticipated to experience a gradual normalization in transactions as consumer spending continues to shift from goods to services.
Zacks Industry Rank Indicates Bright Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #100, which places it in the top 40% 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 outperform 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 a 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.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has underperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 in the past year.
The industry has risen 11.5% in the past year compared with the broader sector’s growth of 19.4% and the S&P 500’s rally of 23.5%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 21.42X compared with the S&P 500’s 21.17X. Meanwhile, the sector’s forward-12-month P/E stands at 22.38X.
Over the last five years, the industry traded as high as 23.43X and as low as 14.25X, the median being 19.7X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Building Products Stocks to Watch
Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows and associated aluminum products serving the global residential and commercial end markets. TGLS has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements, and focus on execution. The company has been delivering solid results for its single-family residential business, which has a shorter cash cycle. Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues.
The Zacks Rank #2 (Buy) company has been committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has rallied 65.6% in a year. The Zacks Consensus Estimate for TGLS’s current fiscal-year sales indicates growth of 7.1% from the year-ago quarter. The consensus estimate for the current fiscal year’s earnings has moved up 1.5% in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: TGLS
Home Depot: The Atlanta, GA-based company is the world’s largest home improvement specialty retailer based on net sales. HD is poised to benefit from ongoing investments. Continued strength in the Pro and DIY categories, and its digital momentum have been the key drivers. Home Depot’s interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters, aiding digital sales.
HD is witnessing significant benefits from the execution of its One Home Depot plan, which focuses on supply-chain expansion, technology investments and digital enhancements. Home Depot has created the fastest, most efficient delivery network in home improvement through options like buy online pick up in-store, buy online deliver from store, and curbside pickup. The Zacks Rank #3 (Hold) company has rallied 11.9% in a year. The Zacks Consensus Estimate for HD’s current fiscal-year sales indicates year-over-year growth of 3.2%. The consensus estimate for current fiscal-year earnings has moved down 2% in the past 30 days.
Price and Consensus: HD
Lowe’s: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company has been enhancing the experience of its pro customers by upgrading pro-focused brands and revamping the pro-service business’s website. LOW has also been well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category. Gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative are likely to drive the company’s results in the near and long term. The Total Home strategy has been resonating well with Pro and DIY customers for a while.
LOW has been progressing well with advancements in the digital channel. Lowe's is investing in enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. The Zacks Consensus Estimate for its current fiscal year’s sales and earnings indicates declines of 3.9% and 9.4%, respectively, from the year-ago quarter’s actuals. The consensus estimate for current fiscal-year earnings has moved down 2.2% in the past seven days. Shares of the Zacks Rank #3 company have risen 6.9% in a year.
Price and Consensus: LOW
Fastenal: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies. The company’s focus on virtual platforms to boost customer engagement is improving sales and driving growth. Cost-control strategies like automating warehouses, increasing delivery efficiency through its trucking network and selling more private-level products with higher margins are aiding FAST to improve efficiency, thereby increasing returns.
Industrial vending is one of the primary growth drivers for FAST and has the potential to significantly increase sales and profits. The Zacks Rank #3 company is striving to boost its onsite location portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has risen 17.4% in a year. The Zacks Consensus Estimate for Fastenal’s current fiscal-year sales and earnings indicates year-over-year growth of 3.3% and 1%, respectively. The consensus estimate for current fiscal-year earnings has been unchanged in the past 30 days.
Price and Consensus: FAST
Beacon Roofing: The Herndon, VA-based company is the largest publicly traded distributor of residential and non-residential roofing materials, and complementary building products in the United States and Canada. BECN has been gaining from several strategic initiatives undertaken to drive its long-term ambition of growing and enhancing customer experience; expanding the top line and the margin; and boosting value for customers, suppliers, employees and shareholders. The company is focused on its Ambition 2025 targets (announced on Feb. 24, 2022), which emphasize operational excellence, above-market growth trajectory and accelerated stockholder value creation.
Beacon Roofing has been focused on four key strategic initiatives — organic growth, digital, On-Time and Complete, and branch operating performance — which have been boosting sales and helping improve operating profitability. Shares of the Zacks Rank #3 company have rallied 7.8% in a year. The Zacks Consensus Estimate for Beacon Roofing’s current fiscal year’s sales indicates growth of 6.7% from the year-ago quarter’s actuals. The consensus estimate for current fiscal-year earnings has moved down 0.9% in the past 30 days.
Price and Consensus: BECN
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5 Retail Building Products Stocks Ready to Gain From Industry Upswing
Participants in the Zacks Building Products – Retail industry are poised to benefit from technological initiatives to enhance the e-commerce experience. Companies are bolstering their digital ecosystems, offering superior online assortments and enhancing omni-channel capabilities. Industry players are also gaining from strategic acquisitions, supply-chain expansion and digital advancements. Ongoing innovation and growth in e-commerce are expected to support companies like The Home Depot Inc. (HD - Free Report) , Lowe's Companies (LOW - Free Report) , Fastenal Company (FAST - Free Report) , Beacon Roofing Supply (BECN - Free Report) and Tecnoglass (TGLS - Free Report) .
However, the housing and home improvement industry is navigating a challenging landscape, marked by broad-based pressures affecting the performance of industry players. These pressures primarily stem from a softening in consumer demand, especially in high-ticket, discretionary categories. Severe constraints related to inflation, a deflation in lumber prices, and product and transportation cost inflation are worrisome.
About the Industry
The Zacks Building Products – Retail industry mainly comprises U.S. home improvement retailers, manufacturers of industrial and construction materials, and distributors of wallboard and ceiling systems. Some industry participants offer products and services for home decoration, repair and remodeling, and in-home delivery and installation services. A few industry players provide construction products, ranging from cement or concrete foundation materials to roofing boards and shingles. The companies also sell lumber, insulation materials, drywall, plumbing fixtures, hard-surface flooring, and lawn and garden decor products. Some players deal in threaded fastener products, and manufactured and natural stone tiles. In addition to general consumers, the industry players cater to professional builders, sub-contractors, remodelers and retailers.
4 Trends Shaping the Future of Building Products - Retail Industry
Digitization & Acquisitions in Focus: Retail Building Products companies have seen a surge in online transactions due to consumers' increasing reliance on digital platforms. This shift toward virtual engagement has boosted top-line growth for many in the industry. In response, companies are enhancing their digital presence by expanding online assortments and strengthening omni-channel capabilities to meet rising demand. To ensure safe and swift service, companies in the industry are also ramping up their delivery operations. The ongoing boom in digital transactions is expected to continue driving revenue growth for the industry players. Acquisitions remain a key growth strategy, with some companies exploring opportunities to expand geographically and improve organic revenues.
Do-It-Yourself (DIY) & Pro Projects: Despite a slowdown in the spending trends, the demand for revamping interiors and repair-remodel creates opportunities for the industry players. DIY projects for decorating and maintaining furniture and fixtures are being widely undertaken. Additionally, consumers are open to hiring professionals (“Pros”) to complete their home renovations, resulting in rising demand for Pro projects. Companies note that Pro backlogs continue to be healthy and elevated. This is likely to aid participants in the home improvement space, with a focus on building Pro offerings.
Soft Trends in Housing & Home Improvement Industry: The home improvement industry has been witnessing widespread pressures on softened customer demand in certain big-ticket, discretionary categories. The high-interest-rate environment since the beginning of 2024 has pressured the demand for larger projects. Inflationary pressures, especially lumber prices, have affected the financial performance of companies in the industry in recent quarters. The recent signs of weakness in the housing market are major concerns due to the heavy dependence of the building products industry on the housing market. Current trends indicate sluggish home sales, elevated prices and high mortgage rates are hurting the performance of the industry participants.
Rising Costs: Inflationary pressures, especially increasing input costs, are concerning for companies in the home improvement industry, as they could squeeze profit margins. Additionally, declining lumber prices may negatively impact the performance of companies in the industry. Some industry participants have adopted a cautious outlook for 2024, citing expectations of reduced consumer spending, normalized transaction levels and ongoing investments aimed at gaining market share. The industry is anticipated to experience a gradual normalization in transactions as consumer spending continues to shift from goods to services.
Zacks Industry Rank Indicates Bright Prospects
The Building Products – Retail industry is housed within the broader Zacks Retail-Wholesale sector. The industry currently carries a Zacks Industry Rank #100, which places it in the top 40% 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 outperform 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 a 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.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Vs. Broader Market
The Zacks Building Products – Retail industry has underperformed the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 in the past year.
The industry has risen 11.5% in the past year compared with the broader sector’s growth of 19.4% and the S&P 500’s rally of 23.5%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is the commonly used multiple for valuing Retail-Wholesale stocks, the industry is currently trading at 21.42X compared with the S&P 500’s 21.17X. Meanwhile, the sector’s forward-12-month P/E stands at 22.38X.
Over the last five years, the industry traded as high as 23.43X and as low as 14.25X, the median being 19.7X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Building Products Stocks to Watch
Tecnoglass: The Colombia-based company is a leading manufacturer of architectural glass, windows and associated aluminum products serving the global residential and commercial end markets. TGLS has been gaining from its ability to capitalize on strong residential demand, investments in automation and capacity enhancements, and focus on execution. The company has been delivering solid results for its single-family residential business, which has a shorter cash cycle. Tecnoglass is poised to benefit from its business momentum, particularly strong single-family residential revenues.
The Zacks Rank #2 (Buy) company has been committed to leveraging its vertically integrated structure and innovative product development to boost shareholder value. The stock has rallied 65.6% in a year. The Zacks Consensus Estimate for TGLS’s current fiscal-year sales indicates growth of 7.1% from the year-ago quarter. The consensus estimate for the current fiscal year’s earnings has moved up 1.5% in the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: TGLS
Home Depot: The Atlanta, GA-based company is the world’s largest home improvement specialty retailer based on net sales. HD is poised to benefit from ongoing investments. Continued strength in the Pro and DIY categories, and its digital momentum have been the key drivers. Home Depot’s interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters, aiding digital sales.
HD is witnessing significant benefits from the execution of its One Home Depot plan, which focuses on supply-chain expansion, technology investments and digital enhancements. Home Depot has created the fastest, most efficient delivery network in home improvement through options like buy online pick up in-store, buy online deliver from store, and curbside pickup. The Zacks Rank #3 (Hold) company has rallied 11.9% in a year. The Zacks Consensus Estimate for HD’s current fiscal-year sales indicates year-over-year growth of 3.2%. The consensus estimate for current fiscal-year earnings has moved down 2% in the past 30 days.
Price and Consensus: HD
Lowe’s: The Mooresville, NC-based leading home improvements retailer has been gaining from strong growth in its Pro business. The company has been enhancing the experience of its pro customers by upgrading pro-focused brands and revamping the pro-service business’s website. LOW has also been well-positioned to capitalize on the demand for the home improvement market, backed by investments in the technology and merchandise category. Gains from the Total Home strategy and the execution of the Perpetual Productivity Improvement initiative are likely to drive the company’s results in the near and long term. The Total Home strategy has been resonating well with Pro and DIY customers for a while.
LOW has been progressing well with advancements in the digital channel. Lowe's is investing in enhancing omni-channel retailing capabilities. Management is also committed to enhancing the Pro offerings, expanding the company’s market share and driving the operating margin. The Zacks Consensus Estimate for its current fiscal year’s sales and earnings indicates declines of 3.9% and 9.4%, respectively, from the year-ago quarter’s actuals. The consensus estimate for current fiscal-year earnings has moved down 2.2% in the past seven days. Shares of the Zacks Rank #3 company have risen 6.9% in a year.
Price and Consensus: LOW
Fastenal: The Winona, MN-based wholesale distributor of industrial and construction products has been benefiting from strong demand for manufacturing and construction equipment, as well as supplies. The company’s focus on virtual platforms to boost customer engagement is improving sales and driving growth. Cost-control strategies like automating warehouses, increasing delivery efficiency through its trucking network and selling more private-level products with higher margins are aiding FAST to improve efficiency, thereby increasing returns.
Industrial vending is one of the primary growth drivers for FAST and has the potential to significantly increase sales and profits. The Zacks Rank #3 company is striving to boost its onsite location portfolio, in which a mini-Fastenal shop is located in a customer’s facility. The FAST stock has risen 17.4% in a year. The Zacks Consensus Estimate for Fastenal’s current fiscal-year sales and earnings indicates year-over-year growth of 3.3% and 1%, respectively. The consensus estimate for current fiscal-year earnings has been unchanged in the past 30 days.
Price and Consensus: FAST
Beacon Roofing: The Herndon, VA-based company is the largest publicly traded distributor of residential and non-residential roofing materials, and complementary building products in the United States and Canada. BECN has been gaining from several strategic initiatives undertaken to drive its long-term ambition of growing and enhancing customer experience; expanding the top line and the margin; and boosting value for customers, suppliers, employees and shareholders. The company is focused on its Ambition 2025 targets (announced on Feb. 24, 2022), which emphasize operational excellence, above-market growth trajectory and accelerated stockholder value creation.
Beacon Roofing has been focused on four key strategic initiatives — organic growth, digital, On-Time and Complete, and branch operating performance — which have been boosting sales and helping improve operating profitability. Shares of the Zacks Rank #3 company have rallied 7.8% in a year. The Zacks Consensus Estimate for Beacon Roofing’s current fiscal year’s sales indicates growth of 6.7% from the year-ago quarter’s actuals. The consensus estimate for current fiscal-year earnings has moved down 0.9% in the past 30 days.
Price and Consensus: BECN