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Housing Market is Perfect for Home Depot

Stock (Symbol)

Home Depot (HD)

Stock Price

$151

Sector
Retail & Travel
Data is as of
July 11, 2017
Expected to Report
Aug 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 SharekThis housing market is perfect for Home Depot (HD). With interest rates low, the home builders are doing well but what’s really pushing HD’s growth is remodels. People are spending money on their homes to “Netflix and chill”. Last qtr the company had big ticket sales growth of 16% with double-digit same store sales (SSS) growth in appliances, lumber and flooring. 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 55% of profits going to dividends (which have increased every year since 1998) with the rest to stock buybacks. 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%. Sales grew just 5% last qtr but profits swelled 16%. This stock is safe, reasonably priced, and comes with an Estimated Long-Term Growth Rate of 12% per year in addition to that juicy yield.
One Year Chart
Last qtr HD delivered sales growth of 5% and SSS growth of 6%. Online sales rose 23%. Profits grew 16% and beat estimates of 11% growth. Annual profit estimates for 2017, 2018 and 2019 increased a nickel across the board. Qtrly profit growth Estimates are 12%, 12%, 9% and 10% but I think the company will continue to deliver 15% growth.
Fair Value
Home Depot has done a remarkable job surviving in an Amazon world. But the stock has come off its highs due to Retail stocks being weak (Retail ETFs). Great! This gives us an opportunity to buy at a reduced price. This stock has solid upside a year out.
Bottom Line
Home Depot is delivering the goods in a solid housing market, and from the looks of things I think this trend the stock has made will continue. This company is a juggernaut, delivering mid-teens profit growth off of just 5% sales growth — amazing. HD ranks 6th in the Conservative Portfolio Power Rankings and 28th the Growth Portfolio Power Rankings.
Power Rankings
Growth Stock Portfolio

28 of 33

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

6 of 33

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