MillerKnoll (MLKN): A Buying Opportunity Amid Hybrid Work Uncertainty

The office furniture sector faces unprecedented headwinds as hybrid work reshapes demand, supply chain disruptions linger, and macroeconomic pressures loom. Among the key players—MillerKnoll (MLKN), HNI (NYSE:HNI), and Interface (NASDAQ:TILE)—one stands out as a contrarian play: MillerKnoll, whose sharp stock decline has created a rare valuation gap. While HNI and Interface have shone with strong earnings and strategic foresight, MLKN's underperformance masks a diversified portfolio and improving fundamentals that could position it for a rebound.

The Hybrid Work Dilemma: Why MLKN's Dip Isn't Permanent

The shift to hybrid work has slashed enterprise spending on traditional office furniture, but demand is evolving—not disappearing. Companies now prioritize flexible, tech-enabled spaces and sustainability, areas where MLKN's product range excels. Yet its stock has plummeted 26.3% YTD (Jan–May 2025), due to:
1. Missed Revenue Estimates: Q1 revenue grew just 0.4% YoY, falling short of expectations by 4.6%.
2. Operational Headwinds: Special charges (including $140M in goodwill impairments) dragged down EPS.
3. Tariff Uncertainty: MLKN faces $5–7M in annual tariff costs, unlike peers with more localized production.

However, these challenges are temporary. Backlog growth (up 12% YoY in Q1) signals renewed enterprise demand, while its $3.6B full-year revenue guidance aligns with a slow recovery. Meanwhile, HNI and Interface's outperformance, while valid, may be overbought.

Peer Performance: HNI and Interface Lead, but at What Cost?

HNI: The Acquisition Play

HNI's Q1 results were stellar: revenue rose 2% YoY, with EPS beating estimates by 12%. Its acquisition of Kimball International (KII) is driving synergies, contributing $0.70–$0.80 EPS growth through 2026.

But HNI's stock trades at a 34% premium to MLKN's valuation, despite MLKN's larger market share in key segments like healthcare and education. The risk? Overreliance on KII's margin-heavy contracts may leave it exposed if housing markets weaken further.

Interface: The Sustainability Star

Interface's 11.4% YTD stock gain reflects investor enthusiasm for its carbon-neutral flooring and 6% sales growth in the Americas. Its ESG focus aligns with corporate ESG mandates, but its niche strategy carries execution risks: a slowdown in education or healthcare spending could hit margins.

MLKN's Hidden Strengths: Why the Dip is a Buying Opportunity

Valuation Gap: A 40% Upside Potential

MLKN's P/E of 10.2x trails HNI's 18.5x and Interface's 16.8x, despite its $3.6B revenue scale—nearly double HNI's and triple Interface's. Analysts project MLKN's EPS to rebound to $1.87 in 2025, implying a 40% upside if its valuation converges to HNI's multiples.

Diversified Portfolio: More Than Just Desks

While HNI and Interface focus on residential or sustainability niches, MLKN's end-to-end solutions—from ergonomic furniture to smart office tech—position it to capture $500B+ in global office spend. Its government and healthcare backlog (up 22% YoY) is a stabilizing factor in an uncertain economy.

Margin Turnaround on the Horizon

MLKN's adjusted margins (14.2% in Q1) are improving, and the company expects tariff impacts to normalize by 2026. Meanwhile, peers like HNI are facing margin pressures from housing slowdowns. MLKN's $900M+ cash reserves also provide flexibility to invest in R&D or M&A.

Risks and the Catalyst for Recovery

The primary risks are continued demand softness and tariff volatility. However, two catalysts could reverse MLKN's trajectory:
1. Enterprise Spending Surge: Companies are delaying, not canceling, hybrid office upgrades. A rebound in Q3 or Q4 2025 could trigger a re-rating.
2. Share Buybacks: MLKN's $40M repurchase in Q1 signals confidence; further buybacks could boost EPS.

Conclusion: MLKN's Undervalued Potential Outweighs Near-Term Concerns

MillerKnoll's stock is a contrarian bet in a sector dominated by overvalued peers. Its diversified portfolio, improving backlog, and margin tailwinds suggest a 40% upside if enterprise demand stabilizes. While HNI and Interface excel in their niches, MLKN's valuation discount and scale make it the best risk-reward play in the office furniture space.

Actionable Takeaway:
- Buy MLKN at current levels ($16.78), targeting $24–$26 by year-end.
- Set a stop-loss at $15.97 (4.8% below current price) to manage volatility.
- Watch for Q3 earnings: A beat on revenue or margin guidance could spark a rally.

The hybrid work era isn't over—it's evolving. MillerKnoll is poised to capitalize, and its undervalued stock offers a chance to profit from this transition.

This analysis is for informational purposes only. Always conduct your own research before making investment decisions.