Home Depot Inc. and Lowe's Cos. are two of the biggest names in all of US retail, but only have about 30% market share in this category, according to Bank of America.
Analysts headed by Curtis Nagle say Home Depot
"Have a market share of around 17% and 12% in what is still a relatively fragmented industry."
The two retailers have notable advantages over smaller competitors, hardware stores, and others in the category, including e-commerce capabilities and access to inventory. Bank of America believes the two companies will continue to generate profits.
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The home improvement retail category soared during COVID-19 as consumers invested in the design of their home to make it more comfortable and meet the demands of work, play, and more.
Bank of America estimates that US home improvement sales, including services, reached $ 767 billion in 2020, "roughly the 20 largest economy in the world."
According to data from Bank of America, the average US household spends $ 3,000 each year on home projects.
Analysts conducted a millennial survey that found much of home improvement activity will continue beyond the pandemic. Almost three quarters (72%) said they would buy a home in the next two years.
"As a result of a combination of more time at home, favorable home-building trends, and strong household balances, demand for a variety of home improvement projects has remained high over the past year," said Bank of America.
Home Depot sales were $ 132.1 billion in 2020 and Lowe's sales were $ 89.6 billion, making them one of the top 10 largest retailers in the United States.
The shares have risen by 15.6% and 18.6% over the year to date. Both outperformed the benchmark S&P 500 SPX, which rose 12.4% over the period.
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Bank of America sees "significant market opportunity" for the category due to home sales and renovations. In addition, it is a category that analysts say is "consistently profitable".
In a release from RBC Capital Markets released last week at the group's Global Consumer and Retail Virtual Conference, analysts also forecast continued demand in the home improvement category, even as consumers return to partying, work, dining and vacations.
"In all of the featured companies, the management teams evoked the ongoing effects of the pandemic on consumer behavior, leading to more time at home and the potential for structurally higher demand in the future," wrote RBC.
"From Spectrum's Home & Garden store to Clorox's BBQ store in Kingsford, consumers have invested in their homes and that is unlikely to go away when it reopens."
RBC rates Home Depot stocks above average. While some may be concerned about “overheating,” there are notable differences between today's home market and that of the mid-2000s, according to RBC.
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“Home equity is at an all-time high, consumer balance sheets and confidence levels are strong, and speculation (a major reason for the excesses in the 2000s) is relatively low given the significant changes in the mortgage finance sector. We also note that home equity use has essentially declined for nearly 10 straight years, suggesting that consumers have continued to deleverage, ”analysts said.
"Rather, today's price increase is driven by good old supply / demand factors."