What Can Boost Home Improvement, Home Depot and Pool Corp. Shares?
· As building season gets under way, there’s a clear separation in the performance of home building and improvement stocks.
There’s been a big divergence in the performance of home improvement and home builder stocks as home buyers and contractors gear up for the U.S. building season.
One outlier is Pool Corp. (POOL), which is down 6.5% and is one of the biggest decliners today in the S&P 500. The wholesale distributor of swimming pool and backyard products, with 455 North American sales centers, announced Monday that John B. Watwood, who joined in January, will take over the CEO slot immediately from Peter D. Arvan, who had been with the company nine years. The company postponed its investor day, which was scheduled for May 12, according to a press release.
On Monday, Benzinga reported that a trader placed bearish put options on Home Depot (HD) stock that expire in December. Filings trickled out Tuesday that U.S. Congressman Sheldon Whitehouse executed a partial sale of shares of Home Depot in February in an amount range of $1,001 to $15,000. Home Depot reports earnings May 19.
PulteGroup (PHM), which pointed to the value of build-to-order houses in its latest earnings update, was in the headlines Tuesday and up more than 3% as it tests the use of small data center units in its communities. Span (a private startup)and Nvidia (NVDA) are developing a distributed network of computer nodes connected to homes with smart panels, batteries and optional solar generation, in partnership with homebuilders including PulteGroup, according to an April PV Magazine article.
Consumer discretionary stocks including Home Depot have underperformed versus the broader S&P 500 on an equal-weighted basis. Yardeni Research President Ed Yardeni noted recently that "if Brent crude remains above $100 a barrel for long, the tax-refund buffer will eventually be exhausted, real income growth will compress further, and aggregate [consumer] demand will slow."
Otherwise, what’s been driving the divergence in housing-related equities is input costs. Tariffs on some imported supplies and the cost of fuel due to the War in Iran mean higher prices for lumber, plastic pipes, roofing materials and a whole lot more. Homebuilders Lennar (LEN) and KB Home (KBH) are down 20% and 11% respectively over the past year. Names that lose when discretionary consumer spending shrinks have taken an even bigger hit. Over the past 12 months, Pool Corp. shares are off 38%; Floor & Décor (FND) is down 34%; Sherwin-Williams (SHW) is off nearly 14% and Home Depot is off 13%.
Conversely, names able to benefit from consumers with more confidence – those in higher income brackets – have held up. Builder Toll Brothers (TOL) shares are up 33% over 12 months and D. R. Horton (DHI) shares have appreciated nearly 18%.
The iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB) are each up roughly 2% today but have turned in a flat performance over the past year, with a steep decline from mid-February coinciding with Middle East conflict and rising oil prices.
New home sales data released Tuesday was positive. Learn more about housing data volatility, slowing demand and rising input costs in a conversation between Kevin Green and Sam Vadas: What's Moving The Market: Jobs, Housing & AI | Morning Trade Live| Schwab Network
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