Nomura’s Jessica Schoen Mace believes Home Depot Inc HD's competitive advantages, market share gains, robust underlying market and strong management position the company for growth and offer downside protection to the stock.
Schoen Mace upgraded the rating on Home Depot from Neutral to Buy, while raising the price target from $140 to $155.
Growth Opportunities
The analyst believes that while home prices are expected to decelerate, the company should be able to continue to see positive comps, as any positive growth in home prices would act as a tailwind.
“It is one of several factors that affect the contribution from housing to HD’s sales opportunity, including housing formation, turnover, and aging housing stock,” Schoen Mace mentioned.
The analyst also believes purchases at Home Depot favor the physical store format, such as the need for “sales associate expertise and the “need now” quality of project-based items.”
Strong Performance To Continue
Schoen Mace estimates 25 percent of the company’s assortment faces the maximum risk from online competition, although these categories have been growing across both of Home Depot’s channels.
The analyst expects the company’s strong performance to continue, driven by opportunities for additional market share gains through customer segments where penetration is currently low.
The EPS estimate for FY16 has been raised from $6.30 to $6.33.
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