Tuesday, November 18, 2014

Stock Analysis: Home Depot (HD)

Notes:
Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today Home Depot announced their third quarter 2015 earnings results.  The company stated earnings of $1.15 on revenues of $20.5B.  Both of these beat estimates of $1.13 and $20.4B respectively.  However, there are analysts out there that are stating that earnings were really at $1.12 and I haven't yet figured out how they come to that number.  The only thing I can think of is some 1-time profits from sale of shares of HD Supply.  That is really the only blemish you could find in their report and conference call.  Revenues were up 5.2%, comps were up in all regions, across all areas of the store - especially the core.  Both the under $20 ticket prices and over $900 ticket prices compared positively from last year as well.  The only area you might want to watch out for would be related to weather.  I'm in Minnesota and we're approaching record low temperatures, as is much of the country as polar vortexes appear to be eager to make their dives this year.  Last year when this happened in January and February, it impacted sales - especially in areas like carpeting, flooring, and major projects.  While it's expected to warm up again some for awhile, weather and storm impacts are something to keep an eye on.  Everything else looks strong.  

The company reiterated their 2015 guidance of $4.54 per share and believe the holiday season will be a continued positive experience for Home Depot customers as well as overall sales.  This continued guidance helps keep me in line with my current expectations as well.  My 2015 estimate is actually at $4.55 and I have a 2016 estimate of $5.23 right now.  The stock trades in line with its growth rate and a strong dividend increase is expected next year.  With no real signs of a slowing consumer for home improvement, I have a price target of $110 for the 2015 calendar year.  Despite today's 2% drop in stock price, I do expect that the stock will turn around.  I had mentioned how much this stock ran going into the quarter, so it's not the least bit surprising that the price will pull back for a few days.  That being said, competitor Lowe's reports tomorrow.  If there's any signs that Home Depot is taking share, the stock could start its trek higher again right away.  I continue to rate the stock a 2, but am not likely to purchase more shares due to my cost basis - unless I infuse more money into my portfolio.  Then I might reconsider.  However, anyone else looking to buy Home Depot should be ready to pull the trigger for at least some in the $93-$94 area, if we're fortunate to pull back that far.