Home Depot Inc (HD) bolstered the bull case for HD stock Tuesday with another strong quarterly performance and a dividend hike, all thanks to the housing market.
Home Depot stock was pretty much range-bound last year even as business continued to accelerate. Heck, HD was one of the few big retailers whose earnings and sales growth bucked an otherwise lackluster 12 months for the sector.
But now shares in Home Depot appeared poised to generate gains they can hold on to. Housing prices are in an uptrend, and that trend has homeowners investing in their properties.
Happily for anyone holding HD, the price trend should continue.
Single-family home sales hit their highest level in 10 months in December, and prices are rising, too. Furthermore, the S&P/Case-Shiller U.S. National Home Price Index is within striking distance of its pre-crash peak after gaining 5.4% in December amid an improving economy and limited supply.
The current year promises more of the same.
After all, a large portion of homeowners have little or no equity in their properties, so they’re not going anywhere. That lowers the number of existing homes on the market. It also prompts folks to improve the dwellings they’re stuck with, both for comfort and eventual resale value.
At the same time, unemployment is down, wages are edging up, and it’s easier to get credit. As the nation’s largest home improvement retailer, Home Depot is perfectly placed to benefit from all this.
Home Depot to Build on Strength
Shares in HD haven’t performed as well as Home Depot’s fundamentals, but recent friskiness suggests that trend can’t last too much longer. The market won’t turn a blind eye to better-than-expected sales, earnings and guidance forever.
For the fourth quarter of 2015, Home Depot earnings came to $1.47 billion, or $1.17 per share, up from $1.38 billion, or $1.05 per share, a year ago.
Those numbers crushed Wall Street estimates. Analysts, on average, were looking for Home Depot earnings of $1.10 per share, according to a survey by Thomson Reuters.
Revenue also topped projections, rising to $20.98 billion vs. the Street’s $20.39 billion forecast. U.S. same-store sales — a critical measure of a retailer’s health — rose 8.9% in the U.S. Analysts were expecting growth of 5.3%.
Most importantly, HD issued market-friendly guidance and opened the spigots for returning cash to shareholders.
The retailer’s outlook for full-year earnings is $6.12 per share to $6.18 per share. The Street forecast stood at $6.16 per share. Revenue is projected at $93.03 billion to $93.83 billion. Analysts were targeting $93.12 billion.
If all of that weren’t enough to build bullish sentiment on Home Depot stock, the company raised its quarterly dividend by 17% to 69 cents per share from 59 cents per share. The company also committed to buying back $5 billion in HD stock this year under its existing repurchase program.
With the housing and labor markets firmly behind it, HD stock has room to run. That’s especially true if it gains enough momentum to lure in performance chasers in a down year for equities.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
