In this article, we will be looking at 5 home improvement stocks to buy now. If you want to see some other top picks in this group and read our discussion on the home improvement sector, go directly to 10 Home Improvement Stocks to Buy Now.
5. Floor & Decor Holdings, Inc. (NYSE:FND)
Number of Hedge Fund Holders: 30
Floor & Decor Holdings, Inc. (NYSE:FND) is a multi-channel specialty retailer of hard floor surfaces like laminate, stone, tile, and vinyl, along with their accessories. The company has 166 stores based on the warehouse format with an average size of 78,000 square feet, which is significantly higher than its industry peers. The warehouse format allows Floor & Decor Holdings, Inc. (NYSE:FND) to have a diverse portfolio of products and enough space to display the offerings attractively to its customers.
Experts believe that given Floor & Decor Holdings, Inc.’s (NYSE:FND) price leadership position in the market, the company could see its top line grow at a conservative estimate of 20% annually. Floor & Decor Holdings, Inc. (NYSE:FND) intends to increase its store coverage three-fold from its current footprint and increase its operating margins into the high-teens.
Here’s what Headwaters Capital said about Floor & Decor Holdings, Inc. (NYSE:FND) in its Q1 2022 investor letter:
“Floor & Decor (“FND”) -38%. The sell-off in Floor and Décor was driven by general concerns around slowing consumer discretionary spending as stimulus benefits wane and consumers shift their spend toward services. More specifically, there is also concern that slowing home sales due to higher mortgage rates will negatively impact home remodel spending. I believe a lot of this remodel concern is misplaced given that the US housing stock continues to age and consumers are sitting on record levels of home equity due to recent home price appreciation, which should support continued strong remodel activity. As of FND’s analyst day on March 14th, management had not yet seen signs of slowing consumer spending given that the company reiterated guidance for same store sales growth of at least 10% for 2022. FND is currently trading at a 20% discount to its pre-COVID multiple, which represents an attractive valuation for a competitively advantaged specialty retailer with a long runway for new store growth.”
Floor & Decor Holdings, Inc. (NYSE:FND) was held by 30 hedge funds at the end of Q2 2022.
4. The Sherwin-Williams Company (NYSE:SHW)
Number of Hedge Fund Holders: 54
The Sherwin-Williams Company (NYSE:SHW) is an Ohio-based company that is involved in the manufacturing and supply of paint and coatings.
In a note issued to investors on July 28, David Begleiter at Deutsche Bank maintained a ‘Buy’ rating on The Sherwin-Williams Company (NYSE:SHW) stock, with a target price of $275. The target price reflects potential upside of over 16.6% from the closing price as of August 29. The analyst addressed the missed revenue and adjusted EPS estimates for Q2 2022 and commented that the stock would be in the penalty box following the weak results.
However, The Sherwin-Williams Company (NYSE:SHW) guided that it anticipates year-over-year (YoY) revenue growth of low to mid-teens during Q3 2022. Assuming a 12.5% YoY growth from last year’s revenue of $5.15 billion, the expected revenue for Q3 2022 would be $5.79 billion, which is $60 million higher than analysts are forecasting.
In its Q1 2022 investor letter, ClearBridge Investments shared its outlook on The Sherwin-Williams Company (NYSE:SHW). Here’s what the firm said:
“Rounding out our risk-focused stance, we believe the addition of Sherwin-Williams (NYSE:SHW), a manufacturer of paints and coatings for professional, industrial and retail customers, adds further resilience in the current inflationary environment. Paint is a relatively small part of total project input costs which can be passed through with price during inflation, and the company has a track record of successfully managing through periods of increased commodity costs. We are attracted to the company’s durability of growth by operating a strong franchise with both organic growth and consolidation amassing a strong portfolio of brands. We like Sherwin-Williams over competitors in the paint industry due to higher volumes, a domestically focused revenue base and strong relationships with the home builder and pro community. We believe the company will be able to keep pricing and expand margins as commodity pressures ease.”
3. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 57
Builders FirstSource, Inc. (NYSE:BLDR) is a Dallas, Texas-based supplier of building materials, prefabricated components, and value-added services in the U.S. Overall, 57 funds held a stake in Builders FirstSource, Inc. (NYSE:BLDR) at the end of Q2 2022.
Joseph Ahlersmeyer at Deutsche Bank initiated coverage on Builders FirstSource, Inc. (NYSE:BLDR) stock with a ‘Buy’ rating and a target price of $93 on August 17. The analyst has a bullish outlook on the home improvement industry due to the aging profile of U.S. homes along with the high mortgage rates prevalent in the market, which has locked current homeowners into their present locations. The price appreciation of homes is also playing a role in encouraging people to renovate their existing houses. Experts anticipate continued strength during the second-half of the year and throughout 2023, which will aid Builders FirstSource, Inc. (NYSE:BLDR) in generating healthy free cash flow, which it can then use for share repurchases and acquisitions.
Here’s what Black Bear Value Partners said about Builders FirstSource, Inc. (NYSE:BLDR) in its Q1 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 13-19% free-cash flow yield so little growth is needed for us to compound value at high rates.”
2. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 65
Lowe’s Companies, Inc. (NYSE:LOW) is a Mooresville, North Carolina-based specialty retail company in the home improvement sector. Pershing Square was the leading hedge fund investor in Lowe’s Companies, Inc. (NYSE:LOW) during Q2 2022.
Following the company’s Q2 2022 results that were posted on August 17, Scot Ciccarelli at Truist increased the price target on Lowe’s Companies, Inc. (NYSE:LOW) from $237 to $263 and maintained a ‘Buy’ rating on the stock. The analyst highlighted that the customer trend for Lowe’s Companies, Inc. (NYSE:LOW) remains strong, with DIY sales showing signs of a positive inflection point, and profitability under control. Ciccarelli anticipates further re-rating during the second-half of 2022 and early 2023. While the analyst shared that the sentiments regarding the macroeconomic outlook and housing remain negative, the comparable sales for big-ticket items grew by 4.7% YoY, and there are no signs of trading down at Lowe’s Companies, Inc. (NYSE:LOW).
1. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 75
The Home Depot, Inc. (NYSE:HD) is an Atlanta, Georgia-based home improvement retailer in the U.S.
Home Depot, Inc. (NYSE:HD) achieved annual sales of $131 billion in 2021. Following the release of the company’s strong Q2 2022 results, Steven Forbes at Guggenheim increased the target price for The Home Depot, Inc. (NYSE:HD) from $350 to $355 and maintained a ‘Buy’ rating on HD shares. The analyst highlighted that the company’s quarterly results were relatively in-line with estimates. The results reiterated the analyst’s belief that The Home Depot, Inc. (NYSE:HD) has set control mechanisms for profit and loss performance. In the current macroeconomic environment, Forbes sees The Home Depot, Inc. (NYSE:HD) gaining market share from competitors and managing the bottom line hand-in-hand.
Following the results, the company’s Board of Directors approved a new $15 billion share buyback program on August 18. The amount is equivalent to nearly 5% of the company’s total market capitalization.
Here’s what Ensemble Capital said about The Home Depot, Inc. (NYSE:HD) in its Q1 2022 investor letter:
“Home Depot (7.7% weight in the Fund): The demand surge for remodeling and home improvement goods sparked by shelter in place orders, remote work going mainstream, and a shortage of homes on the market to buy, ran headlong into the supply chain crisis, triggering surging prices in the products Home Depot sells. But the company has been able to pass nearly all of these increased costs on to customers, with revenue growing 37% over the past two years while gross profits, or the profits the company makes on each item they sell, increased by 35%. Even this small difference appears to be due not to inflation eating away at Home Depot’s profits, but rather be a function of the huge increase in revenue the company has been generating in low margin lumber sales.”
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