It has been a difficult 12-month period for investors in Home Depot (NYSE 🙂 shares. Amid the slowing housing markets, rising mortgage rates and general economic health concerns, the largest US home shopping chain in the last quarter of 2018 lost its luster, ending a remarkable rally in its shares.
But the latest developments on the economic front, especially on the housing market, indicate that the dive that started in September was a weakness in the short term and has gone ahead. Home Depot shares, supported for many years by rising home prices in the US, have won around 20% this year and closed yesterday's session at $ 203.55. The catalysts that encourage investors to take advantage of the weakness of the retailer were falling mortgage rates and some positive data on homes that alleviated fears of a long-term market correction
Weekly Graph of Home Depot
For example,
had the best pace in almost a year and exceeded estimates in February, while sales were 11.8% higher than a month earlier. If this improvement in the macro outlook continues, we see no reason for investors to question the future growth of Home Depot. The slackness in was due to seasonal factors such as a harsher winter and raining kept home-improvement buyers usually indoors.
HD & # 39; s comparable revenue increased 3.2% in the fiscal fourth quarter that ended late February, more than the 4.5% earnings analysts who expected. But that quarterly absenteeism cannot hide the fact that Home Depot achieved comparable revenue growth for 30 consecutive quarters year after year. The quarterly revenue growth was more than 4% for most of that time, indicating that this large cash register trader is pursuing an extremely successful growth strategy.
Successful strategy to ward off competition
Home Depot is one of those retailers that is best placed to survive an ongoing attack by e-commerce disruptors, such as Amazon.com (NASDAQ :). The reason: HD management was invented early to thrive in this challenging environment. Because 90% of Americans were already living less than 10 miles from a Home Depot store, instead of opening new locations, the company focused instead on upgrading the existing store base with better technology and e-commerce. fulfillment options.
Another important step that has helped Home Depot to thrive in the relatively weak housing markets of the past decade is the diversification into areas that are less dependent on the strength of the housing market. According to an analysis in the Wall Street Journal, the start of houses is still less than half what they were at the start of their peak at the start of 2006, but Home Depot's annual sales have since risen by around 30%. "An aging housing stock and more people who decide to stay put and make improvements to the houses in which they live explain much of that discrepancy," the Journal said in a report last year
With this weak correlation between the two and the retailer's success in retaining his most loyal customers, an army of contractors who receive many lucrative offers to stay at Home Depot, chances are that retailer investors will again will surprise with strong sales growth in the same period in the first quarter earnings report scheduled for May 21.
Home Depot sees revenue from comparable stores increase by 5% this year, just below the 2018 rate of 5.2 percent. We see that performance quite optimistic and a good reason to buy Home Depot shares, especially when HD pays a juicy dividend of $ 1.36 per quarter, after a 32% increase in the past quarter. To support the stock price, the company also has a robust $ 15 billion stock repurchase program.
Bottom Line
An improving housing market and the strong growth momentum of Home Depot should continue to support the retailer's share price this year. With a capital gain rate for the entire price of 21, we don't think this share is expensive even after the recent rebound. This retailer is also a reliable dividend payer. The quarterly dividend has increased by 380% over the last decade and with a healthy payout ratio of 42% it has much more room to grow. Any weakness after profit should be a good buy option for investors who stay on the sidelines.
