4 Top Home Appliance Stocks to Watch on Strong Consumer Demand Trends

Companies in the Zacks Household Appliances industry have been witnessing strong momentum from strong consumer demand trends for kitchen and home appliances, driven by the pandemic-led restrictions on movement. Consumers have been spending more time at home and increasing the budget for home-improvement appliances. Additionally, increased demand for Air Purifiers to combat air-borne harmful pathogens is likely to be a key growth driver in the near term. Further, the industry participants stand to gain from the ongoing digital transformation as consumers adopt online shopping for purchasing electronics.

Also, the industry players have been steadfastly investing in product innovation to ease household chores, including cleaning, washing, cooking and more. Investments in the product portfolios and gains from strong demand bode well for players like Whirlpool Corporation (WHR), Electrolux AB (ELUXY), Howden Joinery Group Plc (HWDJY) and Hamilton Beach Brands Holding Company (HBB).

About the Industry

The Household Appliances industry comprises companies that manufacture and market home appliances and other related products. Household or domestic appliances include electrical and mechanical devices, which facilitate chores like cooking, cleaning, laundry or food preservation.

The companies in this industry make refrigerators, washing machines, water coolers and heaters, microwave ovens, toasters and coffee makers, among other devices. The companies sell products through a network of mass merchandisers, retailers, distributors, dealers, and other builders and outlets. In an era of automation, players in the industry are committed to constant technological enhancements to offer smart home appliances, for instance, voice-activated and hands-free devices.

What’s Shaping the Future of the Household Appliances Industry

Solid Product Demand, Shift to E-commerce Trends: The coronavirus pandemic has led consumers to spend more time at home due to restrictions on movement. This has resulted in an increased focus on home improvement through higher budgets for cleaning, kitchen and washing appliances. The companies expect the robust demand to continue aiding their top lines in the near term. Additionally, a spike in the demand for Air Purifiers has been beneficial for the companies in the industry. The pandemic has also driven a shift to consumers’ buying electronics products online. The companies note that the structural shift in shopping preference is likely to stay in the near term, as online demand continues to rise despite the reopening of stores in several regions.

Innovation Drives the Industry: Increased technological advancements, rapid urbanization, rise in income, improved living standards, change in consumer lifestyle and a surge in need for household comfort are the key driving factors for the industry. The demand for fast-accessible and remotely monitored home appliances has been consistently rising, owing to tech-savvy consumers. This compels the industry players to invest in innovation and R&D to come up with differentiated and handy products. The companies are also committed to manufacturing appliances that are a one-stop solution for major household tasks. Additionally, appliance makers are installing smart grids, thermostats, digital inverter compressors and other monitoring sensors to make devices more energy-efficient. As a result, household appliances are becoming more high-tech, embedded with smart sensors and IoT-enabled technology. Such rampant innovation can significantly boost the companies’ top lines. Meanwhile, the industry players are resorting to pricing actions and cost-productivity programs to boost margins and profitability.

Higher Costs Threaten Margins: Although regular technological upgrade is a major survival strategy in the industry, higher spending on technology and innovation has been eating into companies’ margins and profits. Freight cost inflation is an added concern. Prices for raw materials like steel and aluminum, which form the base metals for these companies, remain volatile. Also, volatility in oil, plastic or other secondary raw material prices is concerning. These expenses have been bumping up operational costs year over year, eroding companies’ profits. Additionally, the global coronavirus menace has dented the demand and supply across all industries and continents. With most household appliance producers having operations across the continents, the impacts of the outbreak are likely to get reflected in the near-term results.

Zacks Industry Rank Indicates Bright Prospects

The Household Appliances industry is housed within the broader Zacks Consumer Discretionary sector. It currently carries a Zacks Industry Rank #53, which places it at the top 21% 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 prospects in the near term. 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 position in the top 50% of the Zacks-ranked industries is a result of positive 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. In the past year, the industry’s earnings estimates for the current year have moved up 24%.

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 vs. Broader Market

The Zacks Household Appliances industry has outperformed the broader Consumer Discretionary sector and the S&P 500 Index over the past year.

Stocks in this industry have collectively gained 156.3% compared with the S&P 500 composite’s growth of 61.7% over a year’s time. Moreover, the Zacks Consumer Discretionary sector has risen 78.7% during the same period.

One-Year Price Performance

Household Appliances Industry’s Valuation

On the basis of forward 12-month price-to-earnings (P/E) ratio, a commonly used multiple for valuing Consumer Discretionary stocks, the industry is currently trading at 9.89X compared with the S&P 500’s 22.16X. Further, the sector’s forward-12-month P/E ratio stands at 35.07X.

Over the last five years, the industry has traded as high as 11.35X, as low as 5.61X and at the median of 9.17X as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

4 Household Appliance Stocks to Watch

None of the stocks in the Zacks Household Appliances universe currently sports a Zacks Rank #1 (Strong Buy) but we have two stocks with a Zacks Rank #2 (Buy). We also highlight two stocks with a Zacks Rank #3 (Hold) from the same industry. You can see the complete list of today’s Zacks #1 Rank stocks here.

Electrolux: The consensus estimate for 2021 EPS for this Stockholm, Sweden-based company, which is a leading manufacturer of home appliances worldwide, has been unchanged in the past 30 days. The company has been gaining from consumers spending more time at home, which has led to increased use of their appliances more intensively and allocating a greater proportion of their household budgets for home improvement. This along with the company’s relentless focus on innovation has led to improved demand for its highly featured products, driving a favorable product mix. Shares of this Zacks Rank #2 company have advanced 116.4% in the past year.

Price and Consensus: ELUXY

Howden: The London-based company, which manufactures and sells kitchen and joinery products in the U.K., France, Belgium, the Netherlands, and Germany, has gained 97.5% in the past year. The company is poised to gain from the introduction of innovative kitchen ranges. It introduced 18 kitchen ranges in 2020, with the new Hockley ranges having cabinet doors manufactured by Howden.

The company is also expected to benefit from the development of a new digital platform for its website to enhance digital capability and reinforce the Howden model. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current-year earnings has risen 6.2% in the past 30 days.

Price: HWDJY

Whirlpool: The Zacks Rank #3 company is one of the largest manufacturers of household appliances in the world. The company, based in Harbor, MI, has been benefiting from higher demand for home appliances across several markets as consumers continue to invest in home upgrades with increased stay-at-home practices. Notably, the pandemic has pushed up at-home dining and cooking practices as well as increased focus on hygiene, leading to a spiked demand for Whirlpool’s kitchen and cleaning appliances product lines. Additionally, the company is gaining from high demand for its HEPA Air Purifiers, which are capable of removing 99.97% of particles from the air.

The company’s strong market presence and superior brand image position it well to capture increasing customer demand for home and kitchen products. It expects the demand trends for home appliances to remain favorable in the forthcoming periods. Moreover, the company has been on track with its cost-curtailment plans to boost margins and enhance its liquidity position. Markedly, its stock has rallied 166.3% in the past year. The Zacks Consensus Estimate for its 2021 earnings per share has been stable in the past 30 days.

Price and Consensus: WHR

Hamilton Beach: The stock of the Glen Allen, VA-based manufacturer and supplier of small electric household and specialty housewares appliances has rallied a whopping 151.1% in the past year. The company sells air fryers, blenders, coffee makers, food processors, indoor electric grills, irons, juicers, mixers, slow cookers, toasters, and toaster ovens. It sells products through a network of mass merchandisers, e-commerce retailers, national department stores, variety and drug store chains, specialty home retailers, distributors, and other retail outlets.

The company has been benefiting from strong consumer demand in the United States and Canada markets as well as the fulfillment of order backlog from third-quarter 2020. It expects the demand for small kitchen appliances in the United States and Canada to remain strong in the first half of 2021. The Zacks Consensus Estimate for the company’s 2021 EPS has been unchanged in the past 30 days. The company currently carries a Zacks Rank #3.

Price and Consensus: HBB

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