A strong housing market continues to be a major tailwind for Home Depot Inc (NYSE:HD), which recently extended its streak of earnings beats to eleven. This is a remarkable streak for Home Depot stock, particularly in an environment where brick-and-mortar titans like Macy’s Inc (NYSE:M) and Sears Holdings Corp (NASDAQ:SHLD) are closing stores.
Unlike Macy’s and Sears, which continue to suffer at the hands of Amazon.com, Inc. (NASDAQ:AMZN), HD stock only has to worry about two things: Rival Lowe’s Companies, Inc. (NYSE:LOW) and the housing market.
That is, of course, until Amazon figures out it can package lumber and drywall with free two-day shipping. Until then, Home Depot stock, and to a lesser extent, Lowe’s, are the safest bets in retail besides Amazon.
Why Home Depot Stock Is Still Strong
In the case of HD stock, not only does the company have best-in-class management, but its competitive advantage from the standpoint of merchandising will help extend its market share gains over its competitors. This provides Home Depot stock with plenty of downside protection. HD stock closed Friday at $146.85, up 0.16%. Despite the company’s strong track record, the stock has risen just 14% over the past year, trailing the S&P 500 index’s 17% rise.
Last month, the world’s largest retailer of home-improvement products delivered fourth-quarter earnings of $1.44 per share, beating analysts’ expectations of $1.35. Same-store sales, which tracks the performance of stores opened as least one year, rose a solid 5.8%, surpassing Wall Street estimates for a 3.5% increase. Home Depot’s U.S. same-store sales gained 6.2%, boosted by strong demand for building materials from contractors and appliances from consumers.
What’s more, Home Depot increased its quarterly dividend by 29%, along with a new $15 billion share repurchase program. Can the growth continue? Morgan Stanley analyst Simeon Gutman, who recently upgraded HD stock to Overweight from Equal Weight, sees no signs of slowing down. “The data suggests the housing recovery is in the middle innings, not the 8th/9th which the market believes,” the analyst wrote.
Gutman raised his price target on HD stock to $165 per share, which implies 13% rise from current levels. And with consumers spending more money on home-improvement projects and builders buying more material to build homes, Home Depot, which racked up $5.5 billion in online sales last year, up an impressive 19% year-over-year, is poised to grow revenue and profits for the foreseeable future.
Bottom Line for HD Stock
Home Depot stock has risen 9.6% year-to-date and 4% over the past month. The stock is priced at just 20 times fiscal 2017 earnings-per-share estimates of $7.19, which calls for YoY growth of 11.5%. And with fiscal 2018 EPS growth projected to accelerate to 13%, HD stock, which pays a 2.4% annual yield, should rise to $170 per share, delivering 15.7% returns.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
