Play The U.S. Housing Recovery With These 3 Home Furnishing Companies

Includes: FBHS, LEG, TPX
by: Black Coral Research

With the housing recovery around the corner in the United States, the ancillary industries like home furnishing and fixtures have also started gaining momentum. As the demand for new and more houses grow, so will the demand for furnishing and fixtures, making now the right time to select a few companies in the sector and hold onto them for long-term gains.

Analyzed below are three home furnishing companies selected based on their earnings, future growth prospects and vital ratios.

*As of 5/15/2013

Source: Yahoo! Finance

Tempur-Pedic International Inc. (NYSE:TPX) is a specialty bedding manufacturer. Shares have been volatile since April last year, witnessing extremes from $86 per share in April 2012 to falling to $22 per share in just a few months. However, the shares have rebounded since then, now reaching $48 per share.

The buyout of arch rival Sealy in March, is one of the biggest contributors in the company's first-quarter profit and earnings. Fuelled Sealy Corp's contributions, Tempur-Pedic managed to outperform its first-quarter 2013 earnings forecast. The deal has been beneficial for the company as the sector's competition surges, trying to retain customers who have been hit by the recession. While Tempur-Pedic focuses on specialty products, Sealy Corp makes traditional mattresses, providing a diverse product line to woo customers.

The company's revenue was more than Wall Street estimates. The adjusted earnings per share came in at $0.62 in the first quarter, a decrease of 27.91% from $0.86 in the corresponding quarter of the previous fiscal year. Revenue was recorded at $390.1 million, an increase of 1.49% from the previous period.

Tempur-Pedic's P/E is 45.52, which is quite high, but a look at the company's forward P/E of 13 shows that there is some room for future growth.

Fortune Brands Home & Security Inc (NYSE:FBHS) is a dominant player in home and security products. The company has performed well in the first quarter of 2013 and is expected to continue this strong performance throughout fiscal 2013.

FBHS is set to spend $300 million to acquire bathroom cabinetry maker Woodcrafters Home Products LLC, which has dominated the kitchen segment offerings. With this acquisition, FBHS will be able to provide more offerings in the bathroom category. The cabinet market is on the verge of recovery, which will help FBHS increase sales. Dave Randich, president of Masterbrand Cabinets will be heading the company under Fortune's ownership.

For the first quarter of 2013, the company has outdone analyst estimates. Earnings per share came in at $0.24, which is a staggering increase of 200% over $0.08 in the previous quarter of 2012. The revenue for the company came in at $890 million, an 11.42% increase from the previous year's quarter.

Everything seems to be good at FBHS, with the exception of the stock value: the company's P/E is 47.96 (ttm), while the forward P/E is 25.58, making the company slightly overvalued.

Leggett & Platt, Inc. (NYSE:LEG) designs and produces various engineered components and products worldwide. In the first quarter of 2013, sales for the company came in at $936.0 million, a decrease over $946.8 million in the corresponding quarter of 2012. The net income for the first quarter came in at $49.1 million or $0.33 per share, an increase over $44.0 million or $0.30 per share for 1Q2012. For full fiscal 2013, the company is estimating an annual sales target in the range of 2% to 6%, or $3.80-$3.95 billion.

Hedge funds have held an increasing interest in this stock recently. At the end of 4Q2012, 14 hedge funds held a "buy" position in the stock, which is a positive sign for shareholders who are expecting more returns.

Leggett & Platt is a dividend aristocrat and has a tremendous dividend track record that income investors will love. Leggett & Platt has increased its dividends for 41 straight years and in 49 of the last 50 years. The company's P/E ratio is 19.29 (ttm) and its forward P/E is 18.27. The stock P/E is well within the line and seems like it has room to grow.


All three stocks discussed above hold great potential for the long term. However, for a quick gain Tempur-Pedic looks most promising. The company has posted impressive results and is expected maintain its numbers in the next quarter, due to its intelligent acquisition of rival Sealy. Leggett is also a very good stock to own, but its revenues have come down in the last quarter, leaving some room for concern. FBHS, though performing well, seems slightly overvalued. Also, both Fortune and Legget are trading close to their 52-week high while Tempur-Pedic still has some room to rise.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: Black Coral Research, Inc. is a team of writers who provide unique perspective to help inspire investors. This article was written Aman Jain, one of our Senior Analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: Black Coral Research, Inc. is not a registered investment advisor or broker/dealer. Readers are advised that the material contained herein should be used solely for informational purposes. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

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