fbpx

Home Depot is Growing Better Than You Might Think

Stock (Symbol)

Home Depot (HD)

Stock Price

$128

Sector
Retail & Travel
Data is as of
October 6, 2016
Expected to Report
Nov 15
Company Description
homedepot_manhattanThe Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Home Depot stores sell an assortment of building materials, home improvement products and lawn and garden products and provide services. The Home Depot stores average approximately 104,000 square feet of enclosed space, with approximately 24,000 additional square feet of outside garden area. The Home Depot stores serve three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. As of December 31, 2014, the Company had 2,269 The Home Depot stores, which included 1,977 stores in the United States, including the Commonwealth of Puerto Rico and the territories of the United States Virgin Islands and Guam; 181 stores in Canada, and 111 stores in Mexico. Source: Thomson Financial
Sharek’s Take
David SharekHome Depot (HD) has successfully transitioned from a retailer which expanded by opening new stores to one which gets more out of each store. Last qtr sales were up 6% as same store sales rose 5%. And with that little growth the home improvement juggernaut was able to increase profits 15%. Why? It’s the little things that add up. The average ticket size rose 3% last qtr. Tickets over $900 were up 8% and are 20% of overall sales. Online sales rose 19% for the qtr and now make up 6% of sales. The company now has deliveries with dynamic ETA to get things to customers early and more accurately. Management has a target payout of 50% of profits going to dividends (which have increases every year since 1998) with the rest to shareholders through big stock buybacks. The company is on track to purchase $5 billion in stock, or around 3% of HD’s market cap. In the end, all these little things are making it so HD can grow profits in the mid-teens on just mid-single-digit sales growth, which is quite remarkable. Analysts have a 14% estimated long-term growth rate on the stock, which also has a 2% yield. This is a conservative stock and a solid franchise to own, and the price is reasonable at 21x earnings. Home Depot is a core investment for both conservative accounts and growth accounts as well. My 2017 Fair Value is $158, which is 22x earnings, and represents 24% upside in addition to the dividends.
One Year Chart
hd_2016_q3I’m so impressed that this company has churned out 15% to 24% profit growth the last 4 qtrs. Last qtr’s 15% growth met analysts estimates, but management did guide profits up a little bit going forward. Estimates for the next 4 qtrs are 16%, 15%, 13% and 13%. I’m also very impressed withe Est. LTG of 14%. The stock is currently on a dip, and this looks like a great time to buy.
Fair Value
hd_2016_q3_epsI’m taking my Fair Value down from 23x earnings to 22x, as it doesn’t look like the stock market is going to give HD the higher multiple. But we’ll see. Still, this company has decent upside to my Fair Values, and you get a nice dividend every qtr as well.
Bottom Line
hd_2016_q3_10yrHome Depot is a stock many stock investors should have as a core holding in their accounts. The company is getting a lot out of a little, and the stock is a lot better than it’s getting credit for. Home Depot is currently on a dip, and I feel this is a perfect time to take an investment. HD ranks 4th in the Conservative Portfolio Power Rankings. It continues to rank 14th in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

14 of 37

Aggressive Growth Portfolio

14 of 17

Conservative Stock Portfolio

4 of 35

Not a member? Sign up here for $25 a month.