Home Improvement Sector Set To Explode? Stifel Weighs In

With focus shifted on tech and biotech companies, Stifel analyst David Schick sees many positives in the home improvement sector. In a report published on February 19, Schick focused specifically on many macro trends that seem to be a greenhouse for home sector growth.

The five macro points to focus on:

• Mild weather with exception to Northeast snow.
• Lumber futures prices fell 10 percent past year.
• Real Private Residential Fixed Investment rose 2.6 percent year-over-year.
• Existing Home Sales for Q4 up 3 percent.
• Accelerated retail growth, up 7 percent.

Schick also quoted the FRB Senior Loan Officer Opinion Survey on Bank Lending Practices which states, "several large banks reported having eased lending standards for a number of residential mortgage loans over the past three months." Along with mortgage standards being given some slight slack, rates are down 54 basis points year-over-year. Due to numerous factors above, Schick believes this economic atmosphere would create more potential home improvement projects.

Regarding the specific companies within the industry, the two big players to watch, Home Depot Inc (NYSE: HD) and Lowes Companies (NYSE: LOW), would be the main beneficiaries from these larger economic effects. Schick said, "Both companies have significant incremental efforts underway attacking the pro market – we think there's room for both to gain share – and expect to hear more about this from both companies as 2015 plays out."

These large retailers have seen a substantial jump in price over the last few months, marked by Home Depot and Lowes hitting an all-time highs Monday morning before earnings reports on Tuesday.