Deutsche Bank's 10 Takes After Meeting Home Depot Management

In a report published on Friday, Deutsche Bank analysts maintained a Hold rating on

, with a price target of $108, after a meeting with the company's management team. The ten takeaways from the meeting with members of Home Depot's management team were: 1. The company had recently announced a pilot program aimed at improving the credit program to pro customers. "While this program is still in the pilot stage, we think HD is seeing enough of a positive impact to outweigh the cost and could roll it out further later this year." 2. The margin forecasts cannot continue to improve. The company's current long-term margin guidance of 13 percent may be achieved this year. The reasons for Home Depot targeting flattish gross margins over time include "a cushion for mix as lower margin products like building materials and millwork, which are still below peak levels as a percent of HD's sales, are expected to grow faster than other areas," the analysts said. 3. While the company pays above-market wages, it has plans for a low single digit increase in its pay structure this year on an annualized basis. "This should help absorb what could be an overall lift in market wages due to other retailer's announced wage increases." 4. The company achieved 10.3 percent comp growth in larger ticket items in 4Q, with the growth being driven by more items per basket. "This could suggest that pro customers, as well as DIYers, are no longer buying the bare minimum of needed products when doing a project, which bodes well for future comps," the analysts commented. 5. All the company's stores have two automotive bays that stock mostly convenience items. Home Depot is not "increasing the offering to 6 bays in several hundred stores." 6. The company plans to open 6 stores this year, 5 in Mexico and 1 in Canada. Although the store count will may not increase over time, the company's online business continues to grow. 7. "The biggest share opportunity remains Sears, with the most obvious benefit coming in the appliance business. The flooring business could be a potential opportunity due to sales declines at Lumber Liquidators and HD is seeing some examples of incremental customers because of the situation at LL," the analysts wrote. 8. The company continues to suffer from currency headwinds. Moreover, "Texas is not seeing any incremental weakness from job losses due to oil price declines." 9. Home Depot has announced buybacks worth $4.5b this year and a dividend payout ratio of 50 percent of the previous year's net income. Deutsche Bank believes there could be upside to both. 10. "We are maintaining our comp estimate of 5.0 per cent for 1Q15. Consensus is 5.4 per cent. HD does not guide quarterly comps but has said that 1Q should be the best comp of the year relative to its full year outlook of 3.3 per cent-4.5 per cent, due to easy comparisons," the analysts added.