It is a story we have covered countless times over the years. Monster hurricanes hit the United States and cause horrific wind and rain damage, and both before and after the storms certain companies are the benefactors of the devastation. While no one likes to profit on the misery of others, the bottom line is that the rebuilding process from huge storms can take years. In fact, the process of rebuilding Houston from last year’s Hurricane Harvey is still underway.
In a new research report, Jefferies gives multiple scenarios for companies in their coverage universe that may be affected by Hurricane Florence. We focused in on the stocks that often see massive sales before the storm, in an effort to lessen the impact, and after the damage is done, in rebuilding efforts. All are rated Buy at Jefferies.
At Home
This top consumer discretionary company is in 66% of the top metropolitan statistical areas. At Home Group Inc. (NASDAQ: HOME) currently operates over 100 warehouse-style home furnishing stores in 29 states. The company utilizes low-cost big-box locations (120,000 square feet on average) with five to six times the floor space of competitors to offer over 50,000 stock keeping units (SKUs) per store, with 20,000 new SKUs introduced annually.
In the “fast fashion” of home décor, At Home produces lower-price, lower-quality products that mimic designs of higher-end brands to cater to price-conscious consumers who enjoy frequently changing up the look of their homes.
The Jefferies price target for the stock is $47, and the Wall Street consensus estimate is $43.44. The shares closed Wednesday trading at $33.01 apiece.
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Floor and Decor Holdings
Founded in 2000, this is a smaller cap company the Jefferies team also views as a potential beneficiary of storm-related events. Floor and Decor Holdings Inc.’s (NYSE: FND) initial concept focused on buyouts of products, but it has since evolved to direct marketing.
The stores carry all major categories of hard flooring (tile, wood, laminate and stone), along with decorative items and the accessories needed to complete a project. Some 40% of sales are to do it yourself, and 60% are to professionals. The company currently operates 84 stores, and it is targeting 400 or more stores over the long term.
Jefferies has a $478 price target on the shares, and the posted consensus target is $48. The stock closed trading on Wednesday at $37.43 per share.
Home Depot
This company remains the undisputed leader in the home improvement retail category, and a big Hurricane Florence hit could increase third- and fourth-quarter results. Home Depot Inc. (NYSE: HD) is the world’s largest home improvement specialty retailer, with 2,270 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.
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Home Depot stores sell various building materials, home improvement products, and lawn and garden products, as well as provide installation, home maintenance and professional service programs to do-it-yourself (DIY), do-it-for-me (DIFM) and professional customers.
Home Depot shareholders are paid a 1.94% dividend. The Jefferies price target for the Buy-rated shares is $228. The consensus price objective is $214.60, and the shares closed on Wednesday at $211.98.
Lowe’s
This company has a low 6% of foreign sales and may be poised to see a big sales increase from the storm-related damage. Lowe’s Companies Inc. (NYSE: LOW) operates as a home improvement retailer, offering products for maintenance, repair, remodeling and home decorating.
Categories include kitchens and appliances; lumber and building materials; tools and hardware; fashion fixtures; rough plumbing and electrical; lawn and garden; seasonal living; paint; home fashions; storage and cleaning; flooring; millwork; and outdoor power equipment. The company also offers installation services through independent contractors in various product categories.
While Lowe’s doesn’t have quite the store coverage that Home Depot does, with only 31% of the stores in the disaster-prone states, two recent acquisitions by the company, Alacrity and Maintenance Supply Headquarters, could help it capture continued post-hurricane demand.
Lowe’s investors are paid a 1.68% dividend. While the $112 Jefferies price objective is well above the consensus target price last seen at $104, the shares closed most recently at $114.34.
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Walmart
The giant retailer is another candidate for increased storm-related sales. Walmart Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Walmart Stores, Supercenters, Neighborhood Markets, as well as Sam’s Club locations, in the United States, and it has a growing e-commerce business (including Jet.com). Internationally, Walmart also operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom.
Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce sites in 11 countries. With fiscal year 2017 revenue of nearly $486 billion, Walmart employs approximately 2.2 million associates worldwide.
The company announced in the summer plans to acquire a 77% stake in India e-commerce retailer Flipkart in a $16 billion debt and cash transaction. The deal dramatically expands Walmart’s presence in India, where online retail is growing quickly and Flipkart is a leader. The deal is expected to close in fiscal 2019 and could be dilutive for the foreseeable future.
Walmart shareholders are paid a 2.17% dividend. Jefferies has set its price target at $98. The posted consensus target is $105.28, and the shares closed most recently at $95.97.
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Again, no one wants to benefit from the misfortune of others, but the fact is hurricane and storm damage is nothing new, and while some industries like insurance providers can take a hit, others that help in the rebuilding can reap benefits.
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