Home Depot Going Strong on Key Actions, Hits 52-Week High - Analyst Blog

World's pioneer home improvement retailer, The Home Depot Inc. (HD), surged to a new high of $103.57 on Dec 22, 2014. It eventually closed a notch lower at $103.50, amassing a year-to-date return of 25.7%. The company's shares have been on a roll since it reported robust third-quarter fiscal 2014 results last month, this was further amplified by its recent decision to buy HD Supply Holdings' hardware solutions business.

The company also paid a regular quarterly dividend of 47 cents per share on Dec 18. These regular dividend payments are common for companies enjoying a stable cash position and with free cash flow generating capacity.

Home Depot, a leading player in the highly-fragmented home improvement industry, has been revamping itself by concentrating on square footage growth and increasing productivity from its existing store base. By implementing customer-friendly changes in its store operations, the company hopes to boost its top line.

On Dec 2, 2014, the company penned an agreement to acquire all major assets of HD Supply Holdings Inc's hardware solutions business. HD Supply Hardware Solutions, earlier known as Crown Bolt, engages in providing builders and fasteners to American retailers and has been working with Home Depot for a long time. Home Depot, which is HD Supply's largest customer, contributes nearly 98% to the latter's annual sales. The acquisition is anticipated to close by the end of fiscal 2014.

Investors are also optimistic about this Zacks Rank #3 (Hold) stock's performance, given its positive earnings surprise in the trailing four quarters, averaging about 3.4%. In the last concluded quarter, the company's earnings of $1.15 per share jumped nearly 21.1% year over year and surpassed the Zacks Consensus Estimate of $1.13. Home Depot reported net sales of $20,516 million that rose 5.4% on a year-over-year basis, primarily driven by increased comparable-store sales.

Furthermore, the company, which competes with Lowe's Companies Inc. (LOW), follows a disciplined capital allocation strategy that focuses on making investments to develop its business, while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks. The company intends to repurchase an additional $1.26 billion of its common stock during the fourth quarter of fiscal 2014.

Home Depot currently trades at a forward P/E of 23.0x, a 11.5% discount to the peer group average of 26.0x. The last traded price is 0.5% below the Zacks Consensus average analyst price target of $104. Average volume of shares traded over the last 3 months stands at approximately 5,913K.

Apart from Home Depot, other stocks such as Colgate-Palmolive Co. (CL) and Newell Rubbermaid Inc. (NWL) also reached new 52-week highs of $70.49 and $37.72, respectively, on Dec 22, 2014.

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