Welcome to the Stock of the Day!
In my opinion Home Depot (HD) has been one of the most compelling profit opportunities to come out of the housing recovery. Now that HD shares are rising after its Q3 earnings announcement, let’s follow up on this company and see if its prospects are just as bright going forward.
This Company’s motto is “Home Improvement Made Easy.” That’s because Home Depot is a one-stop shop for building and updating homes, with products available through both physical “big box” stores and an extensive online website. The company also offers tool and truck rental services as well as its own credit center to facilitate financing large purchases. The company has 2,260 stores in all 50 U.S. states as well as in Mexico, Canada and China.
Before the opening bell on Tuesday, management announced better-than-expected operating results for the third quarter. The business benefited from a 7.4% jump in comparable store sales as the housing market continued to firm up and drive demand for home improvement tools and materials. Compared with Q3 2012, net earnings surged 43% to $1.35 billion. Adjusted earnings weighed in 95 cents per share, which trumped the 89 cents per share consensus estimate by 7%. Over the same period, revenue climbed 7% to $19.47 billion, also topping the $19.17 billion consensus estimate.
Looking ahead to full year 2013, Home Depot has once again lifted its sales and earnings outlook. Management now projects 5.6% annual sales growth and 7% same-store sales growth; earlier it had forecast 4.5% annual sales growth and 6% same-store sales growth.
Home Depot also sees adjusted earnings of $3.72 per share, up from its prior outlook of $3.60 per share. Home Depot expects EPS to be boosted by the company’s aggressive stock buyback program. The company has repurchased $6.4 billion in shares this year so far and plans to buy back an additional $2.1 billion in stock this quarter. HD shares broke out to a new high following the strong earnings announcement.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. After spending much of 2012 and 2013 in buy territory, I downgraded HD to a C-rated hold in September due to declining buying pressure.
However, this is a fundamentally strong stock. HD ranks highly on seven of the eight fundamental metrics I graded it on (including sales growth, operating margin growth, cash flow and return on equity). Home Depot receives a C-rating for its earnings surprise track record but that could change once I plug in the latest quarterly results into Portfolio Grader. HD receives a B for its overall Fundamental Grade and a C for its Quantitative Grade.
As of this posting I consider HD a C-rated Hold. However, with these strong results it’s quite possible that I’ll upgrade the stock over the weekend once the latest data have been pulled into my stock screening system.