The world’s pioneer home improvement retailer, The Home Depot Inc. (HD), surged to a new high of $82.47 on Dec 31, 2013. It eventually closed at $82.34, amassing a return of 32.4% over the past 1 year.
Home Depot is a leading player in the highly-fragmented home improvement industry, where it has been revamping itself by concentrating on square footage growth and increasing productivity from its existing store base. By implementing customer-friendly changes in its store operations, it expects to boost its top line.
Further, with home prices at affordable levels and cheap mortgage rates, the housing market recovered significantly in the U.S. in 2013, which in turn favored the company’s performance. This is likely to continue as the housing market is expected to maintain its pace of growth in 2014.
Investors are also optimistic about this Zacks Rank #3 (Hold) stock performance, given its positive earnings surprise in the trailing four quarters averaging about 5.6%. In the last concluded quarter, the earnings of 95 cents a share surpassed the Zacks Consensus Estimate by 6.7%and rose 28.4% year over year. Home Depot reported net sales of $19,470 million that rose 7.4% on a year-over-year basis, primarily driven by increased comparable store sales.
Furthermore, the company which competes with Lowe’s Companies Inc. (LOW) follows a disciplined capital allocation strategy, which focuses on making investments to develop its business, while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks. The company intends to repurchase an additional $2.1 billion of its common stock during the fourth quarter of fiscal 2013.
Home Depot currently trades at a forward P/E of 22.0x, a 6.8% discount to the peer group average of 23.6x. The last traded price is 3.4% below the Zacks Consensus average analyst price target of $85.25. Average volume of shares traded over the last 3 months stands at approximately 6,736.2K.