Stock (Symbol)

Home Depot (HD)

Stock Price

$147

Sector

Retail & Travel

Data is as of

April 2, 2017

Expected to Report

May 16

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) delivered the goods once again, with profits up 23% last qtr, which blew past estimates of 14%. As online sales are causing same store sales (SSS) of many good retailers come in flat (as stock prices are down) Home Depot had 6% same store sales growth last qtr and is getting more profits out of its existing space thus improving on its sales per square foot. With interest rates low, the home builders and remodelers continue to thrive, and people are spending their money at and on the home. Big ticket sales jumped 12% last qtr. This is a mature chain, which doesn’t really grow its store base much (they went from 2274 to 2278 stores last year) but management is sound in improving SSS as well as spending its hoards of profits on stock buybacks & dividends. 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. Wait, they just raised it to 55%. Last year the company bought back around 4% of shares. I’m a big fan of this strategy: Above average SSS growth, stock buybacks, fat dividend yield of 2.5%. Home Depot is really growing profits 15% — it’s sexy even at this age! And not really high-dollar either as its P/E is a reasonable 20. I feel with the high safety factor this company has, the P/E should be 22, or $158 per share. My Fair Value for next year is $179 which would be 22% growth in the stock price in addition to maybe 3-4% in dividends you could earn while waiting.

One Year Chart

Last qtr HD delivered sales growth of 6% and SSS growth of 6%. Profits jumped 23% and beat the 14% estimate by 11 cents. The company had beaten by 2 cents a qtr earlier, and met estimates 3QtrsAgo, so these results boosted the stock’s momentum. The stock gapped up from $143 to $145 and never looked back. After the beat, 2017 estimates only rose 3 cents from $7.16 to $7.19. Looking at qtrly Estimates profits are expected to grow 11%, 13%, 12% and 10% the next 4 qtrs but I think the company will deliver around 15% growth. Although the stock has been rising, HD’s P/E hasn’t gone up much since last qtr, from 19 to 20.

Fair Value

With 15% or so profit growth and a 2% yield, my Fair Value on Home Depot is 22x earnings. That’s a $158 price this year and $179 next year — plus the dividends.

Bottom Line

Home Depot has a lot of positives going for it — starting with a great building environment which is helping big ticket sales. What’s amazing is the company has been growing profits in the teens while sales are growing in the mid single-digits. HD ranks 5th in the Conservative Portfolio Power Rankings and 14th in both the Growth Portfolio and Aggressive Growth Portfolio Power Rankings.