Argus Sees Potential For 15% Return On Home Depot Shares

Home Depot Inc HD reported Q2 EPS on Tuesday at $1.97, representing 14 percent growth and beating the estimate and the consensus.

Argus’ Christopher Graja maintained a Buy rating on the company, while raising the price target from $150 to $154.

Improving Trends

“HD benefited from an improving housing market, strong demand from professional contractors, growth in big-ticket projects, and excellent cost controls,” Graja mentioned.

“Increasing returns on capital, signs of improving customer service during recent store visits, rising home prices, and impressive execution of the business plan support our conviction that even after raising the operating margin by almost 400 basis points over the last four years, Home Depot still has room to increase earnings and profitability,” Graja stated.

Home Depot has been witnessing an uptick in big ticket projects, as well as trade-up to higher quality products, for the first time following the housing crash.

Graja believes this is “an indication that customers have more discretionary income and that they once again believe that home improvement is a good investment.”

Shareholder Returns

“We expect the company to be very disciplined with shareholder capital, returning excess cash to shareholders in the form of buybacks and annual dividend increases,” the analyst added.

Although the stock has returned about 70 percent to shareholders over the past two years, the analyst believes there could be continued upside.

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