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Will Home Depot Gain Further Strength on Growth Plans?

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The Home Depot Inc. (HD - Free Report) has proved to be a winner with its solid surprise history, long-term growth initiatives, merchandising tools and e-commerce growth. The world’s largest home improvement retailer has been reporting strong financial statistics since 2008, with steady improvement in revenues, EPS and net income. The company’s stock has gained over 20% over the past one year.

Home Depot is going strong with a robust start to fiscal 2016, wherein it beat the top- and the bottom-line estimates for the first quarter. Earnings benefited from the company’s focus on improving customer experience, solid execution and broad-based growth across the store, alongside a consistent housing market recovery. On the other hand, improvement in sales was a function of a weekly increase in demand due to changes in weather conditions. Following a strong quarter, the company raised its sales, comps and earnings forecasts for fiscal 2016.

Consequently, the company’s estimates moved up. The Zacks Consensus Estimate rose 1.5% to $6.28 per share for 2016 and 1.4% to $7.10 per share for 2017, over the past 7 days.

Moreover, Home Depot’s focus on developing merchandising tools, along with investment in building its interconnected capabilities is expected to boost its top line, and enhance market share. In an effort to connect the digital and physical worlds, the company is constantly investing in content, developing its website and improving mobile experience to provide better customer experience. The benefits from these initiatives reflected in the 21.5% increase in online sales and double-digits online traffic growth recorded in the first quarter.

The company’s interconnected strategy goes beyond the dot.com investments as it continues to invest in fulfillment options to cater to customers’ demand. For this the company has rolled out a new customer order management system (COM), which will be fully deployed in its U.S. stores by year-end 2016. Not only this, after the rollout of COM, the company launched the Buy Online Deliver From Store (BODFS) capability, which will enhance the delivery process. The company targets to fully implement the BODFS scheme by end of fiscal 2016.

Simultaneously, Home Depot has always maintained a disciplined capital allocation strategy, focused on making investments to develop its business while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks. Also, the company is on track to achieve its long-term dividend payout, share repurchase and return on investment targets.

Stocks to Consider

Home Depot currently holds a Zacks Rank #2 (Buy). Other favorably placed stocks in the same industry are BMC Stock Holdings, Inc. , with a Zacks Rank #1 (Strong Buy), along with Lowe's Companies, Inc. (LOW - Free Report) and Tile Shop Holdings, Inc. (TTS - Free Report) , each with a Zacks Rank #2.

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