Jefferies Sees Wider Margins For Home Depot

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Home Depot Inc HD managers are bullish about the economy and home remodeling cycle while eyeing profit growth through improved store layouts and new product lines, an analyst said Friday.

Jefferies Daniel Binder reiterated a Buy rating and $113 target on the Atlanta-based home improvement retailer after attending a conference with Home Depot managers.

The company aims to squeeze more sales per square foot by reorganizing layouts and making room for new product lines, Binder said.

Do-it-yourself automotive offerings are getting expanded by Home Depot, which now provides a wide product assortment in the category at 50 of its 2,200 stores.

The emerging "connected home" category, is piquing Home Depot's interest as an opportunity, with products to remotely control thermostats, lighting, home monitoring and garage doors.

Binder said the improved merchandising, plus supply chain improvements, will result in wider gross margins and higher return on investments.

"Capital discipline remains consistent, so we expect heavy buybacks to continue," Binder said.

By year end, the company expects to have repurchased about $7 billion worth of its shares in 2014. Its market capitalization is about $130 billion.

Binder said that 16 of Home Depot's top 40 categories have yet to fully recover to pre-recession levels and doing so would yield about $2.7 billion of additional sales.

Analysts on average expect sales of $82.85 million for the year ending January 15, with profits of $4.49 a share.

If all 220 product categories for Home Depot returned to peak levels, sales would rise by about $4 billion, Binder said.

Home Depot shares are up about 20 percent year-to-date, vs. about 12 percent for the S&P.

On Friday, Home Depot traded at $99.50, up 0.52 percent.

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Posted In: Analyst ColorPrice TargetReiterationAnalyst RatingsDaniel BinderJefferies
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