Three Stocks To Comfortably Ride Out The Q1 Earnings Season
We expect the Q1 earnings reporting season to be rocky. Inflation and supply chain headwinds are mounting in the wake of the Ukrainian invasion and threaten both the top and bottom lines of many businesses.
We’ve liked the furniture industry for several years because it got a head start on today’s problem when it began reshaping itself in the Trump/Xi Trade War. The takeaway is that many of these companies were already working on supply chain improvements and cost controls so when today’s troubles rolled along they were ahead of the game.
What that means for the business is that inventories are up and supply chains are flush with strong demand to drive sales. Now, the group is trading at a serious discount to the broad market and pays a very healthy dividend.
Based on the results from The Lovesac Company (NASDAQ:LOVE) and Basset Furniture Industries (BSET), we expect to see Haverty Furniture (NYSE:HVT), La-Z-Boy (NYSE:LZB), and Aaron's (NYSE:AAN) outpace consensus, provide positive guidance, pay their ample dividends, and even possibly issue special dividends and new share repurchase allotments.
1. The Aaron’s Company Incorporated, Spin-Off Complete
The Aaron’s Company Incorporated spun off or was spun off from PROG Holdings (NYSE:PRG), making it a pureplay on furniture and rent-to-own. The company is among the higher-valued furniture companies and one with a lower than average yield but trading at 8X its Marketbeat.com consensus and yielding 2.0% it’s still an attractive stock for income and dividend growth investors.
The company is slated to report earnings in the last week of April and is expected to produce a sequential and YOY increase in earnings that we think underestimates the market. Not only is the housing market strong, but employment is strong in general and coupled with robust home-improvement trends.
2. La-Z-Boy To Rebound In Fiscal
La-Z-Boy doesn’t report earnings next until the middle of June and is one of the better-positioned furniture stocks. The company reported fiscal Q3 results in mid-February revealing the impacts of supply chain and COVID-based disruptions we expect to hear from the broad S&P 500 during the Q1 reporting cycle.
Because those headwinds have dissipated, specifically COVID-related absenteeism and manufacturing shutdowns in Vietnam, we’re expecting to see the company not only catch up with missed revenue, but produce additional growth as well.
La-Z-Boy, along with others in the group, has been actively investing in capacity expansions whose impacts have already begun to show in the top and bottom-line results. As for the valuation, La-Z-Boy trades at 9X its earnings while yielding a stronger 2.5% and it comes with a positive outlook for dividend growth.
3. Haverty Furniture Company, Underestimated, And Undervalued
Haverty Furniture Company is our top pick on this list because it is the best value, and the highest yield, and the analysts are underestimating its Q1 results. The consensus is for sequential and YOY declines in revenue that we just don’t see happening.
Not only is demand strong, but backlogs are still up double-digits from last year so there is no reason to think revenue will not be strong. In our view, the company should produce a sequential uptick and could easily produce a double-digit uptick in both the sequential and YOY comparison.
Haverty Furniture Company trades at only 6.5X its consensus for earnings and yields over 3.6%.
