Earning Analysis: Home Depot (HD)

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.

It's a good thing that Home Depot sells roofs - they blew theirs off when they announced fourth quarter and fiscal year 2015 earnings, today.  I dont' think this is any form of exaggeration either.  This quarter was beyond words, yet management spoke them eloquently anyway.  Earnings came in at $1.17, seven cents above consensus and revenues topped $20.39B expectations, instead hitting $21B in sales.  Store comps were flat out explosive at a 7.1% increase (8.9% for US stores) over the same quarter in 2014.  Analysts were only expecting a 5.9% increase.

Ladies and gentlemen, this is Home Depot.  A company that is well established across all of the US and well introduced into Canada and Mexico.  They've barely introduced any new stores in the last few years and all of these numbers represent the kind of growth you'd see in a company expanding from being a regional chain to a national one.  That's right, no store growth.  People are just coming to the store and buying - and clearly they keep coming back.  

There wasn't a department in the store that didn't have sales growth.  Meanwhile appliances, tools, and building materials all grew at a double digit clip!  Tickets and transactions were larger, with big ticket items up a massive 11.9% with appliances, roofing, and custom kitchens leading the way.  Online sales are growing at 25% and over 40% of those sales are picked up in store - where they have much of the goods on stock already.  And finally, the pro customer growth has begun accelerating past the general consumer.

Normally I would have at least one paragraph to talk about risks, downfalls, etc.  I'm sorry folks, they don't exist.  Not one complaint from the company.  Strong dollar?  They're still crushing with these numbers.  Rate hikes?  There's more household formation going on now than any time since the start of the Great Recession.  Not only that, they expect more next year - that's right, it's possible that this is just the tip of the iceberg.  The last time we went through a recession, the average home stock was 10-20 years younger on average.  They are seeing people are spending 8% more to update existing homes.  This hits just didn't stop coming and even though I expected to see solid results, I'm still trying to pick my jaw up off the floor.

The company provided guidance of $6.12 to $6.18 for 2016, basically a 12 - 13% increase in earnings from 2015 after share repurchases (oh yeah, they intend to buy back $5 billion in shares next year too).  They also raised their dividend by 17%.  Share holder friendly?  Let's just say yes instead of using the metaphors in my head.  I have to basically laugh at the guidance.  I think they're low balling it.  It's the typical behavior of the management team.  I think they're going to have no problem hitting $6.20 this year (and I bet I'm being conservative).  That's almost 14% earnings growth year over year in a well established retail store.  Under a bullish market, I think this stock fetches a multiple of 24-25.  As such, I'm raising my price target for Home Depot to $150.  

Oh, maybe there is one negative thing I can say.  Why the hell don't I own more shares?!