Home Depot, Inc. (NYSE:HD) has been on investors’ good side for a while now. And when you look at the rest of the retail sector, it’s no secret why HD stock stands out.
The strength of Home Depot is well-reflected from its stock price performance. Shares of HD stock have jumped 13.8% year to date, outperforming the Zacks categorized Building Products – Retail/Wholesale industry’s growth of 10.2%. So, let’s take a closer look at the various parameters, which have been driving this Zacks Rank #2 (Buy) company with long-term earnings growth rate of 13% and a VGM Score of “B”.
But what’s driving HD stock and Home Depot earnings right now? And how does the rest of 2017 look for this retailer?
Home Depot has a spectacular earnings and sales surprise history. This leading player in the highly-fragmented home improvement industry has been delivering better-than-expected bottom-line results for the five years. The company’s top line has topped estimates consistently for the last 12 quarters. Further, the company has been witnessing year-over-year growth in revenues as well as EPS for a long time now. A snapshot of these improvements is visible in the following chart.
In last reported first-quarter fiscal 2017, Home Depot maintained these trends. The company continued to reap the benefits of the housing market recovery and high demand. Following the sturdy results, HD stock raised its earnings per share guidance for fiscal 2017 to $7.15 from $7.13, reflecting year-over-year growth of nearly 11%. All these factors inspire optimism about future Home Depot stock performance.
Analysts were also not far behind in raising the estimates for HD stock, as evident from upward revision in the Zacks Consensus Estimate. Evidently, over the last 60 days, the Zacks Consensus Estimate for fiscal 2017 and 2018 increased from $7.19 to $7.23 and $8.07 to $8.11, respectively. Clearly, analysts polled by Zacks are convinced about the stock’s upbeat performance in the future.
Home Depot’s splendid performance has been primarily driven by its superb growth endeavors, which are focused on improving customers’ experience. Additionally, its efficient capital allocation has been an attraction for investors.
Home Depot has been implementing several initiatives to drive long-term growth. In response to the evolving retail environment, where digital and physical stores go hand in hand, the company remains keen on building its interconnected capabilities. In this regard, the company has taken a number of measures in 2016 including redesigning its website with enhanced features. The benefits from these initiatives were evident from online sales growth of nearly 23% in first-quarter fiscal 2017. Further, Home Depot’s interconnected strategy goes beyond the dot.com investments as it continues to invest in fulfillment options to meet the growing demand through the launch of its customer order management system (COM) and the Buy Online Deliver From Store (BODFS) capability.
All these endeavors, combined with Home Depot’s concentration on enhancing store operations are likely to boost its top- and bottom-line in the long run for HD stock.
Home Depot has always maintained a disciplined capital allocation strategy. The company has remained focused on making investments to develop its business while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks. As evidence of progress on the strategic initiatives and commitment to reward shareholders, the company recently raised its long-term dividend payout ratio to 55% of net earnings. Alongside, management announced a 29% hike in quarterly dividend to 89 cents. Moving to share buybacks, the company bought back 8.5 million shares for nearly $1.25 billion in first-quarter fiscal 2017. In fiscal 2017, the company targets total share repurchases worth $5 billion, with plans to buy back shares worth $3.75 billion through the rest of the fiscal year.
All said, we believe that Home Depot is moving in the appropriate direction. With its perfect initiatives and solid background, this home improvement retailer is most likely to keep its momentum going.
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