Argus Raises Home Depot's Target To $160 Following Big Q4 Beat

Argus reiterated its Buy rating and raised its price target on Home Depot Inc HD by $6 to $160, which implies total return potential of about 13.5 percent including the dividend yield of about 2.5 percent.

The price target change comes after better-than-expected quarterly results from the home improvement retailer. Home Depot reported fourth quarter EPS of $1.44, above the average analyst estimate of $1.33. Comp sales at U.S. stores were up an impressive rate of 6.3 percent, handily topping consensus of 3.5 percent.

Analyst Commentary

Analyst Chris Graja sees continued upside for the shares, despite providing more than double the returns of the S&P 500 over the last two years.

“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 more than 450 basis points over the last five years, Home Depot still has room to increase earnings and profitability,” Graja wrote in a note.

Related Link: Large Supplier Checks Have Favorable Read Through For Home Depot, Lowe's

On the sector front, home prices are only now reaching 2006 peak levels and affordability is still positive. In addition, about two-thirds of U.S. homes are more than 25 years old and likely in need of upgrades and repairs.

Notably, Home Depot has surpassed its financial targets ahead of schedule. It beat its goal of a 13 percent operating margin and a 27 percent ROIC by the end of FY 2016, and set a new goal to raise the operating margin to 14.5 percent and ROIC to 35 percent over the following three years.

“We believe that HD will reach its target for operating margin in the current FY18, which is a year ahead of schedule,” the analyst added.

Shares of Home Depot closed Tuesday’s trading at $145.02.