For Immediate Release
Chicago, IL – February 13, 2024 – Today, Zacks Equity Research discusses Leggett & Platt, Inc. LEG, MillerKnoll, Inc. MLKN, American Woodmark Corp. AMWD and Flexsteel Industries, Inc. FLXS.
Industry: Furniture
Link: https://www.zacks.com/commentary/2224553/4-stocks-to-watch-from-the-thriving-furniture-industry
Improved housing market conditions, increasing consumer confidence on the back of expectations of series rate cuts and moderating inflation are encouraging for the Zacks Furniture industry. Along with the improving macro aspects, increasing investments in technological advancements and solutions are expected to drive the industry’s growth.
Importantly, product innovation, along with accretive buyouts, should favor the furniture industry in expanding its global reach. Although continued investments in e-commerce and intense competition are added headwinds, efficient cost management should lend support to industry players like Leggett & Platt, Inc., MillerKnoll, Inc., American Woodmark Corp. and Flexsteel Industries, Inc.
Industry Description
The Zacks Furniture industry comprises manufacturers, designers and marketers of residential as well as commercial furnishing solutions. Some of the companies provide kitchen and bath cabinets as well as various engineered components and products in the United States, along with international markets.
A few industry players also offer specialty rental services, such as modular and portable storage solutions as well as modular space and portable storage solutions. They are involved in designing and producing a wide variety of engineered components and products for homes, offices and automobiles. The industry players cater to different sectors, namely, construction, energy, healthcare, security, government, retail, commercial, education and transportation.
4 Trends Shaping the Furniture Industry's Future
Innovation, Digital Marketing: Product innovation plays a decisive factor in market share gain in this industry. Players are investing in new products to improve the product mix in a competitive landscape and drive top-line growth. Also, millennials represent 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 elevated.
Customer experience is getting enhanced by innovative marketing techniques, emphasizing digital marketing, better merchandising, store remodeling and loyalty programs. These companies are utilizing advanced technology to enhance the overall customer experience, optimize their operations, and provide innovative solutions. Precisely, companies that make strategic investments in digital innovation are poised to navigate challenges successfully and emerge as industry leaders.
Acquisitions & Focus on Public Sector: The industry players are pursuing acquisitions to broaden their product portfolio and expand their geographic footprint as well as market share. Additionally, they are prioritizing the diversification of their business portfolios, expanding their global footprint, and strengthening their positions in resilient sectors such as healthcare and the public sector. The company and its peers are expected to benefit from strong global trends in infrastructure modernization.
Improving Macroeconomic Environment: A slowdown in inflation, expectations of lower interest rates in the near future and overall favorable employment conditions have been strengthening consumer sentiment in recent periods. In January 2024, the Conference Board's Consumer Confidence Index surged to an impressive 114.8, representing a notable climb from December's downwardly revised figure of 108.0. This marks the third successive monthly uptick in consumer confidence, indicating a trend that could foster continued momentum in household expenditures throughout the year, consequently benefiting participants in the furniture industry.
Higher Expenses: The industry players are engaged in active competition to enlarge their market share. In pursuit of this goal, industry players are intensifying their digital presence and refining shipping capabilities, leading to heightened investments. Also, the furniture industry is highly competitive, with home furnishing retailers, department stores and antique dealers having a hard time.
The companies need to make incremental investments to address an expanding omnichannel environment, as shoppers tend to look for online options. Growth in online sales may continue to dent traditional furniture retailers’ market share as brands such as Etsy, Things Remembered, Costco and Amazon are finding their way into the market.
Alongside these challenges, the prospect of rising SG&A rates, increased labor and occupancy costs, and elevated expenses related to marketing and stores could place a strain on profit margins. Notably, the labor market has struggled with the limited availability of labor, which is pushing up labor costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Furniture industry is an 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #92, which places it at the top 37% 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 a higher 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 December 2023, the industry’s earnings estimates for 2024 have increased 4.5% to $2.78 per share.
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, Lags S&P 500
The Zacks Furniture industry has underperformed the broader Zacks Consumer Discretionary sector and the Zacks S&P 500 Composite over the past year.
Over this period, the industry has gained 7.9% compared with the broader sector’s 5.3% rise. The Zacks S&P 500 composite has gained 22.1% over this period.
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing furniture stocks, the industry is currently trading at 14.1X compared with the S&P 500’s 20.9X and the sector’s 18X.
Over the past five years, the industry has traded as high as 19.4X and as low as 10X, with the median being 15X.
4 Furniture Stocks to Keep an Eye On
We have selected four stocks from the Zacks universe of furniture stocks that currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) and have impressive growth prospects. You can see the complete list of today’s Zacks #1 Rank stocks here.
Flexsteel Industries: Based in Dubuque, IA, Flexsteel is a manufacturer, importer and online marketer of upholstered furniture for residential and contract markets in the United States. Despite ongoing challenges in the industry, primarily stemming from changes in consumer spending preferences away from home furnishings, the company has effectively managed its operations. It has capitalized on sustained productivity and cost-saving measures, maintained pricing discipline, and actively managed its product portfolio to its advantage. The company is expected to benefit from its growth strategy and new product introductions.
FLXS — a Zacks Rank #1 stock — gained 70.6% in the past year. Earnings estimates for fiscal 2024 have increased to $1.95 per share (from $1.50) over the past 30 days, depicting analysts’ optimism about the company’s prospects. The estimated figure indicates 124.1% year-over-year growth. FLXS earnings topped the consensus mark in two of the last four quarters, missed on one occasion and met on another, with the average negative surprise being 2.9%. It also has a favorable VGM Score of A, making it a potentially interesting investment opportunity.
Leggett: Based in Carthage, MO, Leggett is a worldwide manufacturer specializing in the conception, design, and production of a diverse range of engineered components and products used in numerous residential, commercial, and automotive settings. Leggett is experiencing positive outcomes from its long-term strategic plan, bolstered by beneficial acquisition endeavors. The company plans to persist in investing to bolster growth in its current ventures and product offerings.
LEG — a Zacks Rank #2 stock — lost 40.7% in the past year. Yet, earnings projections for 2024 have risen from $1.37 per share to $1.39 in the past month, depicting analysts’ optimism about the company’s prospects. The estimated figure is the same as the year-ago figure. LEG earnings topped the consensus mark in one of the last four quarters, missed on two occasions and met on one occasion, with the average surprise being 8.6%. It also has a favorable VGM Score of A.
American Woodmark: This Winchester, VA-based company is one of the largest manufacturers of kitchen and bath cabinets. Amid slow demand conditions, a solid backlog level, higher investments in production capability and capacity, outsourcing staffing additions and productivity improvements are expected to drive growth for American Woodmark.
AMWD — a Zacks Rank #3 stock — gained 60.8% over the past year. Earnings estimates for fiscal 2024 have increased to $8.47 per share from $8.17 over the past 60 days. The estimated figure calls for 11.2% year-over-year growth. This company surpassed earnings estimates in three of the trailing four quarters but missed on one occasion, with the average surprise being 25.4%. It also carries an impressive VGM Score of A.
MillerKnoll: Based in Zeeland, MI, this company researches, designs, manufactures, and distributes interior furnishings worldwide. MLKN has placed a strong emphasis on diversifying its business portfolio, extending its global presence, and bolstering its position in robust sectors like healthcare and the public sector. The company is harnessing advanced technology to elevate the overall customer experience, streamline its operations, and deliver cutting-edge solutions. Furthermore, MLKN is deepening its partnerships with dealers to ensure flawless communication and optimize its operational efficiency.
MLKN — a Zacks Rank #3 stock — gained 17.2% over the past year. MLKN’s earnings topped the consensus mark in all the last four quarters, with the average surprise being 33.3%. The Zacks Consensus Estimate for fiscal 2024 earnings calls for 11.9% year-over-year growth. It also carries an impressive VGM Score of A.
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Leggett & Platt, Incorporated (LEG) : Free Stock Analysis Report
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