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Home Depot (HD) is Ticking Up the Charts: What's the Secret?
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World’s largest home improvement retailer, Home Depot Inc. (HD - Free Report) has been gaining on the back of strong earnings trends, robust outlook, efforts to improve customer experience along with promising capital strategy and a recovering housing market. These factors have aided the company to retain the Zacks Rank #2 (Buy), while carrying a VGM Score of A.
Further, Home Depot’s shares have outpaced the broader industry year to date primarily owing to its spectacular surprise history. While the stock gained 11.3%, the industry grew 6.3%. Moreover, the stock has gained 3.2% in the past month, reflecting sustained positive momentum.
What’s Aiding the Stock Performance?
Home Depot has been delivering strong financial figures since 2008, with steady improvement in revenues and earnings per share. The company has been consistently gaining from its interconnected strategy, focus on Pro customers and housing market recovery.
These factors helped this Georgia-based company to post a stellar second-quarter fiscal 2017 performance, which marked its highest ever quarterly sales and earnings. Notably, sales marked its 13th straight beat, while earnings retained its five-year long trend of positive surprise. Results were driven by solid growth across all regions, both in stores and online. Further, Pro category sales continued to outperform, driven by constant efforts to enhance services to Pro Customers. The company’s recent buyout of Compact Power Equipment is one among the many evidences of such efforts.
Home Depot, Inc. (The) Price, Consensus and EPS Surprise
Apart from this, its relentless focus on innovations, boosting interconnected customer experience and driving productivity seems to be paying off. Also, housing market recovery remains a tailwind. These factors, along with expectations of better home prices and re-emergence of first-time homebuyers, encouraged management to raise sales and earnings per share outlook for fiscal 2017.
This led to an uptrend in the Zacks Consensus Estimates in the last seven days. The Zacks Consensus Estimate for the third quarter and fiscal 2017 rose to $1.80 per share and $7.30 per share, respectively, from $1.79 and $7.24.
Further, 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 the progress on strategic initiatives and commitment to reward shareholders the company targets dividend payout ratio of about 55% of earnings. It bought back 17.3 million shares for nearly $2.6 billion in second-quarter fiscal 2017, which took year-to-date buybacks to $3.9 billion. Moreover, management raised fiscal 2017 buyback target from $5 billion to $7 billion.
Possible Deterrents
While Home Depot has been posting splendid results for a while, the company’s gross margin looks troubled. Evidently, the company’s gross margin contracted 6 bps year over year in second-quarter fiscal 2017, due to unfavorable mix of products sold. Prior to this, the company’s gross margin declined 10 bps each, in first-quarter fiscal 2017 and fourth-quarter fiscal 2016. Moreover, management expects gross margin to drop about 10 bps from last year in fiscal 2017. This could impede results in the coming quarters.
Conclusion
Though the company’s soft gross margins is definitely a concern, we believe growth endeavors and surprise history overshadow this drawback. This suggests that the company will keep its momentum going in the future.
Lumber Liquidators has gained a stupendous 126.5% year to date. Moreover, it has a long-term earnings growth rate of 27.5%.
Children’s Place has a long-term EPS growth rate of 9%. Further, the stock has returned 18.3% in the past year.
Canada Goose has gained nearly 6.7% year to date. Moreover, it has a long-term earnings growth rate of 34.1%.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
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Home Depot (HD) is Ticking Up the Charts: What's the Secret?
World’s largest home improvement retailer, Home Depot Inc. (HD - Free Report) has been gaining on the back of strong earnings trends, robust outlook, efforts to improve customer experience along with promising capital strategy and a recovering housing market. These factors have aided the company to retain the Zacks Rank #2 (Buy), while carrying a VGM Score of A.
Further, Home Depot’s shares have outpaced the broader industry year to date primarily owing to its spectacular surprise history. While the stock gained 11.3%, the industry grew 6.3%. Moreover, the stock has gained 3.2% in the past month, reflecting sustained positive momentum.
What’s Aiding the Stock Performance?
Home Depot has been delivering strong financial figures since 2008, with steady improvement in revenues and earnings per share. The company has been consistently gaining from its interconnected strategy, focus on Pro customers and housing market recovery.
These factors helped this Georgia-based company to post a stellar second-quarter fiscal 2017 performance, which marked its highest ever quarterly sales and earnings. Notably, sales marked its 13th straight beat, while earnings retained its five-year long trend of positive surprise. Results were driven by solid growth across all regions, both in stores and online. Further, Pro category sales continued to outperform, driven by constant efforts to enhance services to Pro Customers. The company’s recent buyout of Compact Power Equipment is one among the many evidences of such efforts.
Home Depot, Inc. (The) Price, Consensus and EPS Surprise
Home Depot, Inc. (The) Price, Consensus and EPS Surprise | Home Depot, Inc. (The) Quote
Apart from this, its relentless focus on innovations, boosting interconnected customer experience and driving productivity seems to be paying off. Also, housing market recovery remains a tailwind. These factors, along with expectations of better home prices and re-emergence of first-time homebuyers, encouraged management to raise sales and earnings per share outlook for fiscal 2017.
This led to an uptrend in the Zacks Consensus Estimates in the last seven days. The Zacks Consensus Estimate for the third quarter and fiscal 2017 rose to $1.80 per share and $7.30 per share, respectively, from $1.79 and $7.24.
Further, 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 the progress on strategic initiatives and commitment to reward shareholders the company targets dividend payout ratio of about 55% of earnings. It bought back 17.3 million shares for nearly $2.6 billion in second-quarter fiscal 2017, which took year-to-date buybacks to $3.9 billion. Moreover, management raised fiscal 2017 buyback target from $5 billion to $7 billion.
Possible Deterrents
While Home Depot has been posting splendid results for a while, the company’s gross margin looks troubled. Evidently, the company’s gross margin contracted 6 bps year over year in second-quarter fiscal 2017, due to unfavorable mix of products sold. Prior to this, the company’s gross margin declined 10 bps each, in first-quarter fiscal 2017 and fourth-quarter fiscal 2016. Moreover, management expects gross margin to drop about 10 bps from last year in fiscal 2017. This could impede results in the coming quarters.
Conclusion
Though the company’s soft gross margins is definitely a concern, we believe growth endeavors and surprise history overshadow this drawback. This suggests that the company will keep its momentum going in the future.
Stocks to Consider
Other top-ranked stocks in the retail space are Lumber Liquidators Holdings Inc. (LL - Free Report) , The Children’s Place Inc. (PLCE - Free Report) and Canada Goose Holdings Inc. (GOOS - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lumber Liquidators has gained a stupendous 126.5% year to date. Moreover, it has a long-term earnings growth rate of 27.5%.
Children’s Place has a long-term EPS growth rate of 9%. Further, the stock has returned 18.3% in the past year.
Canada Goose has gained nearly 6.7% year to date. Moreover, it has a long-term earnings growth rate of 34.1%.
Zacks' 10-Minute Stock-Picking Secret
Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.
But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.
Learn the secret >>