Last week’s stronger-than-expected earnings results for the fourth quarter of fiscal 2013, along with an impressive fiscal 2014 outlook and a raised quarterly dividend infused substantial momentum into the shares of Home Depot Inc. (HD), which have gained nearly 5.3% since reporting its financial results. Moreover, shares of this Zacks Rank #3 (Hold) home improvement retailer went on to hit a new 52-week high of $83.10 on Friday, Feb 28, 2014, before closing at $82.03.
Average volume of shares traded over the last 3 months came in at approximately 6,765K. Moreover, the stock’s valuation provides substantial upside potential as it currently trades at a forward P/E of 18.6x, nearly 15.1% below the peer group average of 21.9x.
The company’s adjusted earnings of 73 cents per share exceeded the year-ago quarter’s adjusted earnings of 67 cents as well as the Zacks Consensus Estimate of 71 cents, primarily driven by effective cost management and a lower share count.
After concluding a favorable fiscal 2013, Home Depot provided its outlook for fiscal 2014 with sales and comps growth of approximately 4.8% and 4.6%, respectively. The company expects diluted earnings for the fiscal to grow 16.5% year over year to $4.38 per share.
Additionally, the company also boasts of an impressive record of beating the quarterly earnings expectations. With respect to this, Home Depot has beaten the Zacks Consensus Estimate 23 times in the last 24 quarters with an average surprise of 34.6%. In the last-reported quarter, i.e. the fourth quarter of fiscal 2013, the company’s earnings beat the Zacks Consensus Estimate by 4.3%.
Home Depot has always maintained a disciplined capital allocation strategy, focused on making investments to develop its business, while using the excess cash to enhance shareholder returns via paying dividends and share buybacks.
Along with its earnings release, Home Depot approved a 21% hike in its quarterly dividend payout. The increased dividend of 47 cents per share, which is payable on Mar 27, marks the company’s 108th consecutive quarterly dividend payment.
Since 1987, the company has increased its dividend from 0.06 cents to 47 cents. Additionally, the company targets to grow return on invested capital to 24% by the close of 2015.
Home Depot is a leading player in the highly fragmented home improvement industry. The company is revamping itself by concentrating on square footage growth and maximization of productivity from its existing store base.
In addition, the company has implemented significant changes to its store operations to make them simpler and more customer-friendly. We believe these initiatives will induce more traffic to its stores and boost its top line.
Besides Home Depot, companies such as Tiffany & Co. (TIF), The New York Times Company (NYT) and Safeway Inc. (SWY) achieved new 52-week highs of $93.97, $16.47 and $38.06, respectively, yesterday.
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