Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Lumber Liquidators Holdings Inc (LL), Lowe’s Companies, Inc. (LOW), The Home Depot, Inc. (HD): Which of These 3 Home Improvement Companies Is the Most Secure?

With the housing market on the rise, companies in various sectors are set to profit. One of those industries is home improvement, and analysts have good reason to be optimistic about the following three companies. As people move into new homes, and as new houses are built, homeowners will need to renovate, and that means major profits for these three firms.

I think the housing market is on the recovery, despite the housing start permits reaching a 10-month low in June after climbing by 6.8% in May. However, bad weather was blamed, and I don’t see the decrease as a trend. This year is still up about 26% from 2012.

Lumber Liquidators increases profit margin

Lumber Liquidators Holdings Inc (NYSE:LL)Lumber Liquidators Holdings Inc (NYSE:LL) is set to earn major profits from the housing recovery. In fact, it reported a 68% increase in quarterly profit over the previous year when it filed earnings on July 24. Much of that was due to lower expenses, as revenue rose just 22% (which is significant, but significantly less than the previous 68% profit increase).

The company’s ability to lower operating expenses tells me it can continue to increase profits. After all, company expenses are much more controllable than sales, as they aren’t completely at the mercy of the economy’s well-being.

Furthermore, those expenses were controlled even though the company opened seven new stores in the quarter. That comes as a relief, because Lumber Liquidators Holdings Inc (NYSE:LL) plans to open between nine to 13 more stores by the end of the year, according to Times Dispatch. Lowering expenses during a time of corporate expansion is a major accomplishment.

Lowe’s is at the mercy of the housing sector

Lowe’s (NYSE:LOW) is the second-largest home improvement store chain — it operates 1,755 stores. Unlike Lumber Liquidators Holdings Inc (NYSE:LL), it has stable expenses, which is not good. The profit margin has been around 4% over the last four years, and that shows the company isn’t optimizing operations.

An inability to increase the profit margin makes the company completely vulnerable to consumer spending power and the housing market’s health. For now, the company will do well, because of the overall recovery of the housing market. However, I consider this stock to be risky because it could run deficits given any fall in the housing market — whereas a company such as Lumber Liquidators Holdings Inc (NYSE:LL) will be able to cushion lower sales because of its ability to keep costs down.

Also, Lowe’s (NYSE:LOW) appears to be falling behind the competition by not expanding as fast as its industry counterparts. The Home Depot, Inc. (NYSE:HD), for example, is moving into Lowe’s (NYSE:LOW) market share of the automated supply chain.

Home Depot is increasing market share

The Home Depot, Inc. (NYSE:HD) (the largest home improvement store chain) is making efforts to expand its IT and distribution network, which is a competitive advantage that is currently controlled by Lowe’s (NYSE:LOW). However, the supply chain at The Home Depot, Inc. (NYSE:HD) isn’t as automated as Lowe’s (NYSE:LOW). Despite that, the company is increasing efforts in that department, and about 66% of its merchandise is flowing through its rapid deployment outlet. That’s an increase of about 25% from two years ago.

Analysts like that prospect. In fact, the consensus opinion of 30 analysts says The Home Depot, Inc. (NYSE:HD) will increase EPS by 17% this year, and another 17.5% next year. Much of that optimism is likely hinged on the recovering housing sector, but also on the firm’s market share strategy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.