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Home Depot (HD) Hits 52-week High on Growth Initiatives

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You must take a look at the world’s largest home improvement retailer, The Home Depot, Inc. (HD - Free Report) , as the stock exhibited a bullish run, over the past one year. Shares of this Zacks Rank #3 (Hold) company have outperformed both the Zacks categorized Building Products – Retail/Wholesale industry and the broader sector. While the stock increased 13.2%, the industry gained 9.3%. Moreover, the Zacks categorized Retail/Wholesale sector returned 8.5% over the same time frame.

In addition, the stock hit a 52-week high of $149.19 yesterday, though it closed lower at $148.73. Further, it exhibits a VGM Score of ‘B’ with a long-term earnings growth rate of 12.7%, highlighting its growth potential.

Let’s Delve Deep

Home Depot appears compelling from the earnings perspective as well. In fact, this home improvement retailer’s earnings have outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 4.4%. Also, the company has to its credit a four-year long trend of beating earnings estimates. Further, the company had outpaced sales estimates in the trailing seven quarters.

The company is gaining from its focus on affording innovative products, boosting interconnected customer experience and driving productivity. It also continued to reap the benefits of a steady housing market recovery and strong customer demand. Looking ahead, Home Depot remains optimistic of its performance in fiscal 2017 as evident from a robust guidance for the year. Earnings per share are expected to increase 10.5% to $7.13 in fiscal 2017, including share repurchases worth nearly $5 billion.

Consequently, the Zacks Consensus Estimate of $7.18 and $8.06 for fiscal 2017 and fiscal 2018 increased 5 cents and 9 cents, respectively, over the last 30 days.

Further, the company’s capital allocation strategy reflects promise as it recently raised its targeted long-term dividend payout ratio to 55% of earnings. In sync, the company increased quarterly dividend by 29% to 89 cents per share and authorized a new $15 billion share repurchase program. All this rightly testify the company’s commitment to enhancing shareholders' value.

Additionally, the company has been revamping itself by concentrating on square footage growth and maximizing productivity from its existing store base. Also, it has implemented significant changes in its store operations to make them simpler and more customer friendly. So, we believe these initiatives should induce more traffic to its stores. Moreover, the company remains focused on developing merchandising tools and increasing investment in eCommerce to boost top-line growth and enhance market share.

However, intense competition and a soft economic recovery may prove deterrents, pushing back home improvement projects. Furthermore, the company’s exposure to international markets makes it vulnerable to currency headwinds.

Stocks that Warrant a Look

Better-ranked stocks in the broader Retail/Wholesale sector include The Children's Place, Inc. (PLCE - Free Report) , BMC Stock Holdings, Inc. and Kate Spade & Company .

The Children's Place, with a long-term earnings growth rate of 10.3%, has increased 46.5% in the past one year. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

BMC Stock Holdings carries a Zacks Rank #2 (Buy) and has climbed 20.3% in the past six months. Moreover, the stock posted an average beat of 132.4% in the past four quarters.

Kate Spade & Company, Ltd., a Zacks Rank #2 stock, has surged nearly 65% in the past three months. Also, it has a long-term earnings growth rate of 28.3%.

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