Massive Damage From Natural Disasters Driving Huge Sales at 4 Companies
This was one of the worst years on record for the United States when it came to hurricane-related and natural disaster storm damage. For Houston alone, the fourth largest city in the United States, data from CoreLogic, a property analytics firm, predicts between $25 billion and $37 billion worth of flood loss, including homes across southeast Texas and southwest Louisiana. Hurricane Irma was predicted to cost around $100 billion worth of damages in Florida. While the storms have left the news cycle, the rebuilding is still just in the early stages.
While many may argue whether climate change had anything to do with the summer deluge of storms, data from the NOAA does show that it had been years since storms this strong hit the United States. In fact, the last major hurricane to make landfall in the continental United States was Wilma, which struck Florida as a Category 3 on October 24, 2005. The last Category 4 storm to make landfall in the United States was Charley, in Florida in August 2004. And the last Category 5 hurricane to devastate Texas was Carla in 1961.
The bottom line is these storms, while catastrophic for many Americans, are providing huge sales for four top companies. A new Merrill Lynch research report notes that there has been a substantial increase in natural disasters and storms since 1980, but few had the severity and impact of this summer. The report also notes that the extensive wildfires in the west and other disasters are also accounting for more and more damage. While disaster repairs account for only 1% of overall home improvement projects, they account for 5% of all home improvement spending.
Four stocks rated Buy at Merrill Lynch could be big beneficiaries of the disaster repair.
This remains the undisputed leader in the home improvement retail category. 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.
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.
The stock has rallied on the company’s strong fundamentals, as well as a highly consolidated industry position that separates it from other retail subsectors. Home Depot remains, clearly, the “best house on the retail block” with room for continued upside on strong traffic and share gains.
The horrific storms that hit Texas and Florida this summer are almost certain to drive third-quarter results higher. Given the work to repair could take some time, the potential could continue well into 2018 and beyond. The research report noted the company has the largest exposure to the most disaster prone states at 36% of store locations. Home Depot is slated to report quarterly results on November 14.
Shareholders receive a 2.18% dividend. Merrill Lynch raised its price target to $190 from $170. The Wall Street consensus price objective is $171.70. Shares traded early Wednesday at $163.15.
This company is poised to see huge sales from this year’s events. 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.
The stock trades at a price-to-earnings discount to Home Depot. Many expect Lowe’s to report strong earnings this month as the disastrous hurricane damage in Texas and Florida could drive earnings for multiple quarters. It is scheduled to report on November 21.
Lowe’s investors receive a 2.12% dividend. The $95 Merrill Lynch price objective compares with the consensus target of $84.73 and the recent share price of $77.50.