On August 30, Hurricane Idalia made a devastating entrance on the coastline of Taylor County, Florida, near Keaton Beach. With sustained winds estimated at 125 mph, Idalia was classified as a Category 3 hurricane according to the Saffir-Simpson Hurricane Wind Scale. Hurricane Idalia traversed inland across the eastern expanse of Florida's Big Bend region, advancing toward South Central Georgia.
The coastal regions of Taylor and Dixie County experienced a surge in water levels, reaching an alarming peak of eight feet above the ground level and encroaching nearly one and a half miles inland.
Accompanied by fierce winds, the storm left the area littered with fallen trees, displaced power lines, and debris. Widespread power outages are reported. Also, in Florida’s Pasco County alone, approximately 4,000 to 6,000 homes were inundated.
Idalia Wreaked Havoc
Risk analytics company Verisk anticipates that the onshore property insured losses from Hurricane Idalia's carnage will fall within the daunting financial bracket of $2.5 billion to $4 billion.
Assessing the severity of claims linked to Idalia necessitates considering the implications of inflation and the lingering repercussions stemming from Hurricane Ian. Certain aspects of the damage, such as fallen trees, carry the potential for accruing significant costs associated with clean-up initiatives and roof replacement endeavors.
Fast-moving and rising coastal surges accounted for substantial damage to manufactured homes, a major constituent of the residential inventory within the Big Bend region. These homes experienced extensive roof losses, siding damages, and, in some instances, near-total destruction due to wind and surge, especially within coastal vicinities.
Residential homes built on slab foundations endured significant water-related damages affecting various building components and interior contents. Yet, elevated beachfront properties managed to hold up relatively well under the circumstances.
According to Moody’s, Idalia was the ninth named storm of the 2023 North Atlantic Hurricane Season. Idalia’s impact of damage and lost economic activity is expected to be between $12 billion and $20 billion.
While construction expenses have seen reductions from their peak levels in recent years, they are still leveled above their long-term averages. Moreover, Florida's stringent regulations stipulate that state-certified contractors must undertake roof repair operations.
Given the vastness of wind damage brought by the hurricane, there exists a potential for exacerbating Florida's already fragile labor situation, potentially leading to an unexpectedly protracted recovery phase.
Despite Hurricane Idalia not reaching the destructive intensity of Hurricane Ian, its raging floodwaters have unmoored boats in coastal neighborhoods. Many residents are now grappling with locating their displaced vessels and managing the damage wreaked by the storm.
Home improvement retailers are springing into action to support their Florida employees and customers affected by Hurricane Idalia.
Well-established retailer The Home Depot, Inc. (HD), as one such proactive response, has set up a command center to ensure uninterrupted communication between its merchandise and operations teams and its outlets and suppliers on the Gulf Coast and other areas struck by the storm.
Many staff from its merchandising, operations, and supply chain teams are busy ferrying truckloads of essential products, including generators, water, tarps, plywood, batteries, and flashlights, to their stores.
Likewise, Lowe's Companies, Inc. (LOW) is channeling its resources towards ensuring an adequate stock of storm-related products like generators and clean-up supplies at its stores. The company is diligently striving to provide relevant products where they are needed most, whether for wind-related or flood-related support.
To ensure this, LOW’s merchant associates are on the ground, pinpointing the most crucial products in specific areas. The company had taken the precautionary measure of stocking hurricane-related items at its distribution centers well before the onset of the hurricane season.
As Florida initiates restoration actions post-hurricane, home improvement retailers are projected to book sales. With a proven tendency for a rise in comparable store sales relative to the severity of such natural disasters, the industry has inevitably captured attention.
Given this backdrop, let’s turn our focus toward the fundamental analysis of three home improvement stocks that could be worth buying under the current circumstances:
The Home Depot, Inc. (HD)
HD, a pioneering force with over four decades of legacy in the retail home improvement sector, offers an unparalleled selection of lumber, building materials, and home improvement products. Their offerings, priced competitively, maintain a robust standing in the service-focused retail landscape.
The company's unwavering commitment to innovation and upgrading its product range, service proficiency, and sound financial performance bolsters its commanding market position.
Achieving international presence through strategic acquisitions, HD's sales outside the United States reached $3.73 billion for the quarter ending July 30, 2023, accounting for approximately 8.7% of its net quarterly sales.
HD’s revenue grew at 9.1% and 8.2% CAGRs over the past three and five years, respectively. Over the past three years, the company’s EBITDA and net income rose at CAGRs of 8.4% and 11.1%, respectively.
During the second quarter, the company opened two new stores in the U.S., bringing its total store count to 2,326 as of the end of the quarter. As of July 30, 2023, 317 stores, or 13.6% of HD's global network, were in Canada and Mexico. For the second quarter of fiscal 2023, sales per retail square foot were $684.65, and for the first six months of fiscal 2023, it was $638.50.
For the six months that ended July 30, 2023, HD’s net cash provided by operating activities stood at $12.21 billion, up 69.9% year-over-year, indicating that the core business activities are thriving. For the same period, the company returned approximately 11.4% of sales to shareholders in a mix of dividends and share buybacks, indicating reasonable sustainability.
HD continues to boost shareholder value, evidenced by a fresh authorization of a $15 billion share repurchase program and a dividend declaration of $2.09 per share for the second quarter, payable to shareholders on September 14. This marks the company's 146th consecutive quarter of dividend payment.
HD expresses optimism towards the medium-to-long-term outlook for the home improvement sector and remains confident about capturing a larger market share in an expansive yet fragmented market. For fiscal 2023, it projects an operating margin rate between 14.3% and 14%.
Changes have been observed concerning institutions' holdings of HD shares. Approximately 70.5% of HD shares are presently held by institutions. Of the 3,472 institutional holders, 1,546 have increased their positions in the stock. Moreover, 158 institutions have taken new positions (3,417,304 shares), reflecting confidence in the company’s trajectory.
Lowe's Companies, Inc. (LOW)
LOW is a prominent American retail company that operates a home improvement and appliance store chain.
Even though LOW is a non-pet retailer, it has recently announced an expansion of its commercial ties with Petco, bringing more veterinary care and pet supplies to almost 300 of its locations by the end of the year.
This strategic move comes in response to the upsurge in pet ownership since the onset of the COVID-19 pandemic, which led to a substantial increase in demand for pet products and veterinary services. Consequently, retailers are seizing this profitable opportunity by establishing their platforms as comprehensive shopping destinations for pet owners.
LOW’s revenue grew at 5.1% and 5.7% CAGRs over the past three and five years, respectively. Over the past three years, the company’s EBITDA and net income rose at CAGRs of 10.6% and 1.8%, respectively.
Maintaining a disciplined emphasis on its top-tier capital allocation strategy, LOW persists in creating sustained value for its shareholders. In the second quarter of 2023 alone, the company invested in a share buyback program, purchasing approximately 10.1 million shares at $2.2 billion. Additionally, they delivered $624 million in dividends.
Last month, the company declared a quarterly dividend of $1.10 per share, payable to the shareholders on November 8, 2023. Its annualized dividend of $4.40 per share translates to a 1.92% yield on the current share price. Its four-year average dividend yield is 1.62%. The company’s dividend payouts have grown at a CAGR of 24.5% over the past three years and 20% over the past five years.
For the second quarter that ended August 4, 2023, LOW posted better-than-expected results, surpassing the top and bottom-line estimates. Its net sales reached $24.96 billion, while net earnings stood at $2.67 billion. Its earnings per share came at $4.56.
LOW's chairman, president, and CEO, Marvin R. Ellison, said, “Our ability to reduce expenses while improving customer service is the result of excellent execution by our team, and we remain confident in the mid-to long-term outlook for the home improvement industry. In recognition of the contributions of our front-line associates, we are awarding over $100 million in discretionary and profit-sharing bonuses to them this quarter.”
For fiscal 2023, LOW expects revenues to be between $87 billion and $89 billion, while EPS is expected to come between $13.20 and $13.60.
Ownership data indicates institutional holders have a significant interest in LOW, accounting for approximately 74.9% of LOW shares. Of the 2,464 institutional holders, 1,013 have increased their positions in the stock. Moreover, 167 institutions have taken new positions (1,363,818 shares), reflecting confidence in the company’s trajectory.
Marine Products Corporation (MPX)
MPX, specializing in designing, manufacturing, and selling recreational fiberglass powerboats, offers clients a suite of products, including Chaparral sterndrive leisure boats, Chaparral outboard leisure boats, and Robalo outboard sports fishing vessels.
MPX’s revenue grew at 26.3% and 8.9% CAGRs over the past three and five years, respectively. Over the past three years, the company’s EBITDA and net income rose at CAGRs of 37.1% and 41.7%, respectively.
Leveraging a strong previous quarter's sales performance, MPX aims to harness this ongoing momentum throughout the year. As a long-term objective, the enterprise plans to diversify its product suite and enhance its dealership network.
MPX reported formidable sales of $116.16 million for the fiscal second quarter that ended June 30, 2023, marking a 21.2% year-over-year rise. The company's ability to ensure the delivery of completed boats to its network of 206 domestic and 92 international accredited independent dealerships assisted in satisfying its dealers' inventory needs during peak retail selling seasons.
The growth in net sales can be attributed to an 11% increase in the number of boats sold during the quarter, a 10% uptick in the average selling price per boat, and a surge in parts and accessories sales. An increase in unit sales within both the Chaparral and Robalo brands was observed.
Gross profits saw a jump of 24.6% from the prior-year quarter, amounting to $28.66 million, while net income stood at an impressive $14.32 million, a 43.9% year-over-year increase.
While international sales currently comprise approximately 7% of the company's sales demographic, growth is evident with a 4% year-on-year increase. The 92 non-U.S. dealerships form more than 30% of the company's total dealership count, signaling a substantial potential for further expansion in international markets.
As part of its steadfast dedication to providing shareholder returns, MPX recently declared a quarterly dividend of $0.14 per share, scheduled for payment on September 11. Its annualized dividend of $0.56 per share translates to a 4.04% yield on the current share price.
Its four-year average dividend yield is 3.82%. The company’s dividend payouts have grown at a CAGR of 11.9% over the past three years and 8.6% over the past five years.
Bottom Line
The global economy is straining under various interrelated challenges and crises as the world navigates a critical juncture. Current and impending climatic obstacles exacerbate the threats, further intensifying the strain on global stability.
Amid these turbulent times, there is a silver lining. The global home improvement services market signals a beacon of economic resilience. Experts anticipate robust growth in this sector, projecting it to achieve $423.90 billion by 2027, growing at a CAGR of over 5%. This market prompts an intriguing opportunity for investors.
Given the industry tailwinds, investors might consider turning to dividend-paying home improvement stocks with robust fundamentals and trading at attractive valuations that offer consistent returns and bolster portfolios during uncertain times.
