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Home Depot (HD) Stock Up 12.6% YTD, What Should You Know?

Zacks Equity Research

Home Depot Inc. HD stock reflects strength, backed by the integrated retail strategy that connects offline and online channels. Further, its focus on Pro customers has been aiding top-line growth. This along with its One Home Depot investment plan keeps it on track to reach long-term goals.

Backed by these positives, the Home Depot stock has outperformed the industry in the year-to-date period. Shares of this Zacks Rank #3 (Hold) company rallied 12.6% compared with the industry’s growth of 9.7%. Additionally, the stock’s long-term earnings growth rate of 10.8% and a VGM Score of B reflect its inherent strength.

 



Factors Driving Growth

One of the key factors aiding Home Depot’s performance lately is its integrated retail strategy. The company is witnessing improved customer satisfaction scores and conversion rates through investments in interconnected capabilities that encompass digital properties and physical store assets. In first-quarter fiscal 2019, online traffic remained sturdy and sales increased about 23%. The company remains focused on using its digital platforms in adjacent categories such as HD Home and pool.

Further, as a testament to its interconnected retail strategy, the physical stores continue to be relevant to shoppers as nearly 54% of online orders in the United States were picked up in stores. Moreover, the company continues to roll out automated lockers in its stores to make picking up of online orders easier and convenient.

Moreover, Home Depot’s Pro segment is key growth driver, with Pro sales outpacing DIY (do-it-yourself) sales for the past several quarters. The Pro segment is benefiting from the company’s efforts to enhance service capabilities for the Pros. Home Depot has been making investments to bring a more personalized experience for Pro customers through its new B2B website. In the fiscal first quarter, the company added 35,000 customers to its B2B website, bringing the total to 135,000 customers.

Based on customer feedback, Home Depot is continuously enhancing its online account management and ordering capabilities for the Pros. It expects to roll out this Pro online experience to more than a million Pros by 2019.

Home Depot is also on track with the “One Home Depot” investment plans that were outlined in December 2017. It is benefiting from efforts to provide an interconnected shopping experience to customers, with localized and innovative products, and improved productivity.

The company reiterated its targets for fiscal 2020, anticipating total sales of nearly $115-$120 billion. This represents compounded annual sales growth of nearly 4.5-6%. Operating margin is expected to be 14.4-15%. Moreover, the company expects annual average capital spending to be about 2.5% of sales, with return on invested capital of more than 40%, reflecting the impact of the new tax reform. Alongside achieving these targets, it plans to accelerate investments in the next three years to enhance customer experience and shareholder value.

Wrapping Up

The aforementioned positives have driven strong financial figures since 2008, with steady improvement in revenues and earnings per share. The company reported better-than-expected earnings and sales in first-quarter fiscal 2019. With this, Home Depot retained its five-year-long streak of positive earnings surprise. Moreover, the company delivered sales beat in nine of the last 11 quarters.

For fiscal 2019, it expects sales to rise nearly 3.3%, with comps growth of about 5%. The company anticipates earnings per share of $10.03, up nearly 3.1% from the year-ago reported figure.

2 Better-Ranked Stocks to Consider
 
BMC Stock Holdings, Inc. BMCH delivered average positive earnings surprise of 47.13% in the trailing four quarters. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Technoglass Inc. TGLS delivered average positive earnings surprise of 50% in the trailing four quarters. It has a long-term earnings growth rate of 20% and a Zacks Rank of 2 (Buy).

Builders FirstSource, Inc. BLDR delivered average positive earnings surprise of 17.9% in the trailing four quarters. It currently has a long-term earnings growth rate of 5% and a Zacks Rank #2.

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