Masco Corporation (MAS) Stock Forecasts

Summary

The pace of home-improvement activity is poised to slow, according to the Leading Indicator of Remodeling Activity (LIRA) from Harvard University’s Joint Center for Housing Studies. The LIRA helps forecast activity and turning points in the $485 billion national repair and remodeling market. We find the indicator helpful in analyzing Consumer Discretionary and Industrial stocks. The LIRA projects 5% year-over-year growth in remodeling activity in 3Q23 and a 2.8% increase in 4Q, followed by a decline of 2.7% in 1Q24, and a 5.9% drop in 4Q23. The National Association of Home Builders’ NAHB/Westlake Royal Remodeling Market Index (RMI) tells a similar story. In the second quarter of 2023, the RMI declined by 9 points year-over-year to 68, but continued to signal positive sentiment. The index scale is 0-100 and values over 50 indicate that a higher percentage of remodelers view conditions as good. The Current Conditions component of the RMI slipped to 77 in 2Q23 from 83 a year earlier. The Future Indicators component dropped to 60 from 70, as backlogs declined and the pace of new inquiries slowed. Home-improvement activity may be poised to slow, but we don’t expect a significant drop. Residential fixed investment currently sits at 3.8% of Gross Domestic Product, which is below its post-World War II average of 4.6% and well below a peak of 6.7% before the Great Recession. In addition, more than half of U.S. homes are over 40 years old and in need of repairs. As well, 90% of homeowners have locked-in mortgage rates and two thirds have a rate below 4%. They may make improvements rather than moving. With demand likely to slow, we like internal catalysts such as efficiency and financial strength that have enabled Home Depot to deliver 15% annual dividend growth over the last five years; Lowe’s turnaround plan, that is lifting margins and winning business with contractors; and Masco’s repositioning to be less economically sensitive.