We recently published a list of 7 Best Furniture Stocks To Invest In According to Analysts. In this article, we are going to take a look at where HNI Corporation (NYSE:HNI) stands against other best furniture stocks to invest in according to analysts.
The furniture industry has faced some serious headwinds over the past years. Last time the industry was thriving at substantial growth rates was in 2021, when a surge in consumer spending after the pandemic uplifted the industry. According to a report by Home Furnishing Business, the furniture and bedding industry sales grew by around 21.9% during 2021. However, the growth trend couldn’t sustain for long due to the rise in inflation, which resulted in the growth falling to only 5.2% in 2022 and negative 0.4% in 2023.
Fastforwarding to 2024, it seems that the furniture industry is yet to rebound from its post pandemic lows. Most of the major players in the furniture retail industry of the United States posted declining sales and falling share values during the first quarter of fiscal 2024. According to a report by Forbes, the sales of furniture and home furnishings were down by 6.8% year-over-year in May 2024 indicating one of the biggest drops according to the monthly data. The industry has faced a tough economic environment due to high interest rates and inflation affecting consumers purchasing power. Moreover, the increase in mortgage rates have also added to the challenge as fewer home purchases mean less furnishing needs. Historic data shows that the 30 year mortgage rate graph and the S&P 500 Furnishings index have always shown an inverse relationship meaning a drop in mortgage rates has helped increase sales for the industry.
Looking ahead, analysts believe there is some bright spot for the industry to rebound out of its lows. The Consumer Price Index by the Bureau of Labor Statistics shows that prices fell by 3.7% in May 2024, moreover, the cost of overall household furnishing also dropped by 2.5% during the same month. The drop in prices is expected to attract customers as they gain back their purchasing power. In addition the recent Fed cut is also expected to ease the economy allowing more consumers to spend on home furnishing, thereby helping the industry to bounce back.
An Overview Of The International Furniture Market
According to a report by Global Market Insights, the international furniture market was valued at $641.7 billion in 2023. The market is forecasted to grow at a compound annual growth rate of 5.1% from 2024 to 2032. The growth in the market is fueled by rising disposable income, innovation in the furniture industry, and the growth in the hospitality and housing sectors. As per the report, the current trends in the industry include a growing consciousness of buying furniture made from sustainable material that causes a smaller environmental effect. Moreover, consumers are also preferring smart furniture that offers adjustability and customization options.
As far as the regional insights are concerned the Asia Pacific region remains the largest market with a share of $321.5 billion as of 2023. Moreover, China is one of the largest producers of furniture accounting for approximately $7.13 billion market share.
The furniture industry falls in the consumer cyclical sectors of the stock market and most of the furniture companies are either small or medium-cap companies.
READ ALSO: 10 Best Falling Stocks To Buy According to Hedge Funds and 8 Best Small-Cap Growth Stocks to Buy According to Analysts.
How Are Cyclicals Expected to Perform?
Mike Wilson, CIO and Chief U.S. Equity Strategist of Morgan Stanley released a note on October 22nd through the company’s podcast called Thoughts On The Market. He discussed his analysis regarding the quality of cyclicals and how they would be affected by the US elections and global liquidity. He mentioned that he continues to believe in cyclical shifts and financial upgrades. The cyclicals traded well last week because most economic data was stronger than expected. Wilson noted that investors must stay up the quality curve within the cyclical sector.
He mentioned that financials has been the best-performing sector in the S&P 500, however, institutional investors remain underexposed to the industry as per the bank’s data. Wilson noted that there are other factors other than better economic data that support the high-quality cyclical stocks. The main factors that he is closely watching are the US elections and global liquidity. Wilson mentioned that the outcome of the upcoming election could significantly impact market performance. A victory for Donald Trump, especially with a divided Congress, is believed to favor small-cap companies alongside larger ones. This scenario could lead to a stronger performance for cyclical stocks like those in finance. Moreover, he also mentioned that there has been a substantial increase in the amount of money available globally, which can boost asset prices across various sectors.
While discussing more about the hypothetical scenario of a Trump win, Wilson mentioned that the market seems to reflect optimism about cyclical stocks, particularly financials, which have outperformed recently. He mentioned that other people argue that a Trump win would be a headwind for growth and equity markets, due to tariff risks and slowing immigration.
Wilson thinks there are other factors to consider. To elaborate, he drew a historical comparison with the 2016 election and noted that Trump’s election led to increased confidence among small businesses and individual investors, which positively impacted the markets. There is speculation that similar sentiments might arise if he wins again.
Simultaneously, Wilson also discussed the other potential outcome of Kamala Harris winning the election. In this scenario, he believes the market might revert to favoring defensive investments including bonds and stable growth stocks.
He elaborated that it is critical to note that the economic conditions today are very different from the 2016 period when the economy had a greater amount of idle resources, thereby holding the capacity to absorb additional pro-cyclical policies, including tax rate cuts or other stimulus.
Moreover, in terms of global liquidity, Wilson noted that the global money supply in US dollars has surged at an 18 % annualized rate since the end of June 2024. He thinks this indicates a positive effect on equity prices, the credit spread, precious metals, real estate, and cryptocurrencies.
Lastly, Wilson believes that stock markets are expected to perform well and rise in value across both general indexes and specific types of investments.
Our Methodology
To compile the list of 7 best furniture stocks to invest in according to analysts we used the Finviz stock screener and our previous articles. Using these two sources we aggregated a list of furniture stocks that were most widely held by hedge funds during Q2 2024, as per Insider Monkey’s database and for whom analysts’ 12-month median price targets were presenting an upside of at least 15% from the current levels. Next, we ranked the stocks based on the analysts upside potential. Please note that the list is ranked in ascending order of the the upside potential and that the data was recorded on October 23, 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An upholstery furniture product in modern living room, showcasing the design and comfort of the furniture.
7. HNI Corporation (NYSE:HNI)
Number of Hedge Fund Holders: 19
Analysts Upside Potential: 19.89%
HNI Corporation (NYSE:HNI) is a leading furniture company based in the United States. It operates through two main business segments including Workplace Furnishing and Residential Building products. The workplace portfolio of the company includes office desks and chairs, Storage solutions, meeting tables, and architecture products.
Moreover, within the residential building products segment, the company focuses on heating solutions including fireplaces such as gas, wood, electric, and pellet-fueled fireplace options, outdoor fireplaces such as fire pits and tables, and other related accessories.
HNI Corporation (NYSE:HNI) operates through 27 industry-leading brands with 8,000 members worldwide. The second quarter of fiscal 2024 came in with strong financial performance for the company. Earnings per share for the company were $0.75 (GAAP) and $0.79 (Non-GAAP). The non-GAAP earnings figure was a record for the second quarter increasing 44% year-over-year, driven by workplace furniture profits, and a strong contribution from Kimball International’s acquisition.
The company acquired Kimball International on March 8th last year, the acquisition added around $0.15 to the company’s total non-GAAP EPS during the second quarter. Overall, the net sales of the company were up 10.7% year-over-year to reach $623.7 million during the second quarter, with gross profits improving 360 basis points to 41.9%.
For the second half of fiscal 2024, HNI Corporation (NYSE:HNI) expects its Workplace Furnishing segment net sales to grow by low single digits with Residential Building Products net sales growing by mid-single digits. HNI is one of the best furniture stocks to invest in according to analysts. It was held by 19 hedge funds during the Q2 of 2024, with total stakes worth $51.89 million.
Overall, HNI Corporation (NYSE:HNI) ranks 7th on our list of best furniture stocks to invest in according to analysts. While we acknowledge the potential of HNI to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.