Home-Improvement Stocks Stay the Course Amid Nesting During Covid-19--Update
August 21 2020 - 5:58PM
Dow Jones News
By Julia Carpenter
Home-improvement stocks have been on the rise. As the pandemic
keeps many Americans in their houses and apartments -- using their
living spaces as home offices, gyms and art studios -- more are
interested in upgrading their spaces.
Another strong round of earnings from Home Depot Inc. and other
home stocks is indicative of the trend. As of Friday, shares of
Home Depot are up 29.7% since the start of the year, and shares of
Lowe's Cos. are up 35% in the same period. The S&P 500 is up
5.1% in the same period.
"I've been in this space for 17 years, and this environment is
not one I've seen before," said Seth Basham, specialty retail
analyst at Wedbush Securities. "I think we'll see this trend
persist into 2021, the longer Covid persists as a problem. The
stock will just continue to skyrocket."
While these stocks aren't getting upgraded, many have already
bet on home-improvement stocks and are watching the trend with
interest.
According to Joseph Feldman, senior managing director and
assistant director of research at the Telsey Advisory Group, many
investors have seen this trend coming. "I have heard a lot of
people asking, 'Is this as good as it gets?' " he said. "I am not
so sure. I think there is more life for both the sales growth and
these stocks."
Home Depot's revenue rose 23% from the year-earlier period to
$38.05 billion. Following layoffs of thousands of store workers and
cost-cutting this month, Lowe's reported a 30% increase in revenue
for the May-to-July quarter.
These companies remain pandemic winners because their stores are
deemed "essential" by many municipal governments, which allow them
to remain open during coronavirus-prompted shutdowns. Both
companies have reported an increase in foot traffic since April,
and analysts expect this to continue into the fall months.
"As it relates to growth in the back half of the year, we're
still expecting strong growth relative to pre-pandemic levels, but
we do expect a bit of moderation compared to this 'peak trend'
level, so to speak, that we've seen in recent months," Mr. Basham
said.
"These trends have legs, and as I mentioned before, the longer
we see people nesting, the more ingrained the shopping behavior is
and the willingness and desire to improve and upgrade the home is,
even as we move into 2021," he added.
Home-improvement and furnishing companies with strong online
presences are especially well-positioned right now when people are
hesitant to enter public spaces.
Wayfair Inc. and Overstock.com have seen growth in sales since
the start of the year. Shares of Wayfair have more than tripled, up
nearly 277% since the end of 2019.
The biggest driver to home-improvement stock success was
homeowners looking for projects they can do themselves. Mr. Basham
pointed out Home Depot and Lowe's have in this time acquired lots
of new customers who now have greater confidence in their ability
to take on home renovation, remodeling and smaller improvements.
Analysts expect this to continue, as people remain mindful of
social distancing and health guidelines that limit interactions
with strangers and groups.
Mr. Basham said he has historically looked at home sales and
housing prices when it comes to home stocks. But now, he points to
the massive shift in consumer-spending trends. The continued
success of these home stocks reflects a broader trend in
pandemic-era consumer spending, as people cut spending in some
areas, such as travel and dining, to reallocate those dollars to
groceries and home upgrades.
Investors are betting companies will continue to allow their
employees to work from home for the remainder of 2020. Some may see
home upgrades as an investment in their home value, said Scot
Ciccarelli, retail analyst at RBC Capital Markets.
" 'The home is your castle again' is something I've been saying
a lot," Mr. Ciccarelli said. "You see a contractor in front of your
neighbor's house, and then in lockdown, you see all the warts in
your home. You know, there's only so much Netflix you can
watch."
Write to Julia Carpenter at Julia.Carpenter@wsj.com
(END) Dow Jones Newswires
August 21, 2020 17:43 ET (21:43 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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