Welcome to the Stock of the Day.
In my opinion, Home Depot (HD) was one of the most compelling profit opportunities to come out of the housing recovery. Now that Home Depot stock shares are rising after its Q4 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 today, management announced mixed operating results for the fourth quarter. On the one hand, net income declined 1% and revenues fell 3% compared with Q4 2012. Home Depot’s $17.7 billion in revenue missed the $17.92 billion consensus estimate. On the other hand, the company earned $1.01 billion, or 73 cents per share, which topped the consensus estimate by 2 cents per share, or 3%.
Looking ahead to full year 2014, Home Depot projects 4.8% annual sales growth, or $82.6 billion in annual sales. This is below analyst estimates of $82.85 billion in sales. Home Depot also sees adjusted earnings of $4.38 per share, also below the $4.42 consensus EPS estimate.
Even so, HD shares rose after the report after the company boosted its quarterly dividend payment by 21% to 47 cents per share. Shareholders of record on March 13 will be paid on March 27. But I wouldn’t necessarily buy HD shares just for the dividend right now.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. When it comes to institutional buying pressure, this Conservative ranked stock has been stuck in a rut since September. This (as shown by the stock’s C-rated Quantitative Grade) has kept HD shares at a hold.
Meanwhile, the company’s fundamental strength has been breaking down of late. Of the eight metrics I graded it on, Home Depot receives C-ratings for four: Sales growth, earnings momentum, earnings surprises and analyst earnings revisions. The home improvement retailer is currently doing well on operating margin growth, earnings growth cash flow and return on equity. It receives a B for its Fundamental Grade.
Bottom Line: As of this posting I consider Home Depot stock a C-rated Hold. And for those of you that have held HD shares for a while and are sitting on a nice return, this may be a good time to lock in those gains.