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Home Depot (HD) Gains Momentum: What's Driving the Stock?

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Home improvement retailer, Home Depot Inc. (HD - Free Report) has been in investor’s goods books lately owing to its solid earnings trend, efforts to improve customer experience, promising capital strategy, and the housing market recovery. These factors have helped this Zacks Rank #3 (Hold) stock climb up the charts, despite the challenges in the retail sector.

Shares of Home Depot jumped 6% in the last three months, outperforming the Zacks categorized Building Products – Retail industry’s gain of 1.8%. Further, the stock is supported by a VGM Style Score of “B” and long-term earnings growth rate of 13%, which justify its growth prospects.

While the Zacks Consensus Estimate of $2.21 for second-quarter fiscal 2017 has been stable in the last 30 days, it represents a 12.1% growth year over year. Further, analysts polled by Zacks expect revenues of $27.8 billion for the fiscal second quarter, up nearly 4.9% from the prior-year period.

What’s Driving the Stock?

Home Depot’s relentless focus on innovating products, boosting interconnected customer experience and driving productivity seems to be paying off. Further, the company is reaping the benefits of a steady housing market recovery and strong customer demand.

In response to the evolving retail environment, where digital and physical stores go hand in hand, the company remains keen on building interconnected capabilities. To this direction, the company has made great strides in 2016 by redesigning website with enhanced features for better search and faster checkout, upgraded mobile app along with addition of the estimated time of arrival feature. The benefits from these initiatives were evident from online sales growth of nearly 23% in first-quarter fiscal 2017.

Further, the company’s capital allocation strategy reflects promise. As evidence of its progress on strategic initiatives and commitment to reward shareholders, the company targets dividend payout ratio of about 55% of earnings. The company bought back 8.5 million shares for nearly $1.25 billion in first-quarter fiscal 2017. In fiscal 2017, the company targets total share repurchases worth $5 billion, with plans to buy back shares worth $3.75 billion through the rest of the fiscal year.

Moreover, the company remains focused on developing merchandising tools and increasing investment in eCommerce to boost top-line growth and enhance market share.

These factors also aided the company post earnings surprise in first-quarter fiscal 2017, retaining the four-year long trend of beating earnings estimates. Additionally, the company’s top-line was ahead of estimates and grew year over year. Results gained from growth across its interconnected platform as well as all regions. Moreover, the company raised earnings guidance for fiscal 2017 while retaining the sales view.

Home Depot, Inc. (The) Price, Consensus and EPS Surprise


Home Depot, Inc. (The) Price, Consensus and EPS Surprise | Home Depot, Inc. (The) Quote

Possible Deterrents

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

Bottom Line

Nevertheless, we remain confident of the company’s growth prospects as its strategic initiatives clearly outweigh the deterrents. Hence, we would suggest holding on to the stock for the moment.

Stocks to Consider

Meanwhile, investors may consider better-ranked stocks in the retail sector like Burlington Stores Inc. (BURL - Free Report) , Dollar General Corp. (DG - Free Report) and Target Corp. (TGT - Free Report)   All these three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Burlington Stores has gained nearly 13.6% year to date. Also, the company’s estimate for the current fiscal have witnessed positive estimate revisions in the last 30 days and has a long-term growth rate of 15.9%.

Dollar General has a long-term EPS growth rate of 10.6%. Further, the company’s estimates have witnessed positive estimate revisions in the last 30 days.

Target has witnessed positive estimate revisions in the last 30 days. Further, the stock has a long-term growth rate of 5.4% and recorded an average beat of 16.5% in the trailing four quarters.

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