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Here's Why Home Depot (HD) Deserves a Place in Your Portfolio

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The Home Depot Inc. (HD - Free Report) has been an investor favorite for quite some time, thanks to the improving housing trends along with its prudent investment strategies. The company has been benefiting from the robust demand for home-improvement projects as consumers stayed indoors for most of 2020.

Additionally, its investments in the integrated retail strategy have proved beneficial as consumers’ preferences increasingly shifted to online portals to keep themselves safe. These traits have helped the company deliver strong quarterly results despite the pandemic-led disruptions.

Home Depot retained investors' bullish sentiments by maintaining its earnings beat streak in all of the last four quarters, the average being 9.9%. Also, the top line surpassed estimates in the last four quarters. This, in turn, underlines its operational excellence.

The company has been effectively adapting to the continued boom in renovations and construction activities, driven by investments in its business over the years. It is also gaining from strong growth in its Pro (professional) and DIY (Do-It-Yourself) customer categories, and continued digital momentum.

In the past 30 days, the company’s estimates for fiscal 2021 and 2022 earnings per share have moved up 9.6% and 6.4%, respectively. For fiscal 2021, its earnings estimates are pegged at $13.90 per share, suggesting a rise of 15.5% from the year-ago reported figure.

Moreover, the Zacks Rank #2 (Buy) stock has gained 17% in the past three months compared with the industry’s growth of 12.9%.


 

Zacks Investment ResearchImage Source: Zacks Investment Research


Now let us discuss at length what makes the leading home-improvement retailer an investor favorite.

Home Depot is witnessing significant benefits from the execution of the “One Home Depot” investment plan, which focuses on expanding supply-chain facilities, technology investments and enhancement to the digital experience. Amid the pandemic, customers have been increasingly blending the physical and digital elements of the shopping experience, making the interconnected One Home Depot strategy most relevant.

The interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic for the past few quarters. Sales, leveraging the digital platforms, grew 27% year over year in the fiscal first quarter, with about 55% of the online orders being delivered from a store.

Another key component of delivering an interconnected experience is enhanced delivery and fulfillment options. Over the years, the company has created the fastest and most efficient delivery network in home improvement through options like buy online pickup in store with convenient pickup lockers, buy online deliver from store with express car and van delivery, and curbside pickup.

In first-quarter fiscal 2021, it rolled out mixed-cart selling from store capability, eliminating the friction for both customers and associates. The mixed-cart feature enables customers to add products from both the website and store to a single transaction. This also enables associates to more efficiently serve the total project needs of customers.

Moreover, it is looking to enhance interconnected facilities in the tool rental through the expansion of rent online pilot chainwide. This will expand its rental footprint, with the rent online, pick up in store capabilities available across all 1,300-plus tool rental locations in the United States and Canada. This capability is likely to enhance the experience for both Pro and DIY customers.

The rise in repairs and home remodeling projects, with heightened engagement from new and existing customers, has been resulting in increased engagement in DIY projects. Notably, the strong demand trends witnessed in the back half of fiscal 2020 continued to the first quarter of fiscal 2021.

Categories from gardening to garage and organization have been witnessing strong demand trends. Additionally, the first-quarter results gained significantly from a robust spring selling season, with strong demand across key outdoor and garden categories.

Moreover, Home Depot’s Pro segment has been a key growth driver, with the Pro segment witnessing robust sales growth for the past several quarters. In the fiscal first quarter, its Pro customer sales accelerated on a sequential basis and grew year over year in double-digits. Moreover, Pro sales growth slightly outpaced DIY sales in the fiscal first quarter. The company witnessed notable strength in pro customers, marking the fourth consecutive quarter of accelerated growth.

Home Depot expects continued sales growth from Pros as project demand is strong and the Pros’ backlogs are growing. The company remains on track with its strategic investments to build a Pro ecosystem that includes professional-grade products, exclusive brands, enhanced delivery, credit, digital capabilities, field sales support, HD rental and more. The company expects its differentiated Pro ecosystem to aid in deeper engagement with Pro customers in the long term.

Conclusion

Backed by the progress on its One Home Depot strategy and continued strength in Pro and DIY categories, we expect the company to retain its business momentum in the near term.

Other Retail Stocks to Watch

Lumber Liquidators Holdings, Inc. (LL - Free Report) has a long-term earnings growth rate of 22.5%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe’s Companies, Inc. (LOW - Free Report) has an expected long-term earnings growth rate of 13.8%. It currently sports a Zacks Rank #2.

Tecnoglass Inc. (TGLS - Free Report) , also a Zacks Rank #2 stock, has a long-term earnings growth rate of 20%.

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