Stock (Symbol)

Home Depot (HD)

Stock Price

$133

Sector

Retail & Travel

Data is as of

December 15, 2016

Expected to Report

Feb 21

Company Description

The 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

Home Depot (HD) continues to post solid results, with profits up 18% last qtr helped by a 6% gain in same store sales. HD gets pretty much all of its sales growth from same store sales growth, which is just fine when the company does so many other things right. The average ticket size rose 3% last qtr. Also, Tickets over $900 rose 11% last qtr and make up 20% of overall sales. The new HomeDepot.com website went live last qtr and online sales rose 19% to make up 6% of total sales, with 40% of orders being picked up at stores. HD has been able to grow profits in the teens with just mid-single digit sales gains due in part to stock buybacks. Management has a target payout of 50% of profits going to dividends (which have increased every year since 1998) with the rest to stock buybacks. The company repurchased $2 billion in stock last qtr, or around 1% of market cap. This safe stock carries a 14% Estimated Long-Term Growth rate in addition to a 2% yield and is a good selection for conservative investors as well as those seeking growth. My 2017 Fair Value is $158, or 21x earnings, and represents a possible 20% total return one year from now.

One Year Chart

HD is doing so well right now, but in 2016 stock investors were more interested in value stocks, thus this stock didn’t make much headway even though profits grew briskly in each of the last 4 qtrs. Last qtr, profits grew 18% and beat the 16% analyst estimate. Sales rose 6%, as did same store sales. Profit growth Estimates for the next 4 qtrs are 14%, 12%, 13% and 13%. Those are solid figures for a mature company, and Wall Street should give HD a higher P/E than 19.

Fair Value

My Fair Value on Home Depot is 22x earnings, which is $158 a share in 2017 and $178 in 2018. Plus investors receive dividends along the way. One risk to these projections is higher interest rates could harm the housing market. But existing homeowners are still in spending mode as home values continue to rise.

Bottom Line

Home Depot the company is doing extremely well, but HD stock isn’t as investors have turned their attentions to other less-sexy stocks. Still, in the end, I believe stock growth correlates to profit growth and this stock should be growing in the mid-teens like its profits are. I feel 2017 will be a return to the norm as growth stocks take back the reigns and lead the market higher, and Home Depot could be a leader in the coming year. HD ranks 5th in the Conservative Portfolio Power Rankings and 10th in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.