Citigroup Raises Home Depot Price Target Following Earnings

In a note out Wednesday, Citigroup analyst Kate McShane maintained a Buy Rating on Home Depot Inc HD, while upping the price target to $133.

McShane feels that buyback flexibility should provide support to EPS target, while the company's EPS guidance is conservative given buyback assumptions.

The $4.5 billion buyback assumption for 2015 is below the $7 billion repurchased in 2014. Citigroup is modeling 2015 buybacks of $7 billion, which adds an incremental ~$0.05 to its EPS estimate of $5.26 (or $0.09 above high end of Home Depot's guidance).

Home Depot officials noted that, "if foreign currency exchange rates remain where they are today, this would cause a negative impact to fiscal 2015 net sales growth of ~$1 billion." The negative impact would drop year-over-year growth to the low end of sales growth and comp guidance (sales growth of 3.5 percent, comp of 3.3 percent, EPS of $5.11).

"We are raising our target price to $133, which equates to 22x our FY17 EPS estimate. Over the past three years, HD has traded at a forward multiple ranging from 16x to 25x and averaging around 20x. We think HD deserves to trade at a premium based on upside from the likelihood of greater than guided return of capital and a likely conservative benefit from U.S. housing."

The new $133 target implies 134.91 percent upside from Tuesday's $116.75 closing price for Home Depot.