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Home Depot Cruising Ahead of Industry & S&P 500, Here's Why

Zacks Equity Research

The Home Depot Inc. HD has been witnessing solid momentum, having outpaced the industry and the S&P 500 in the past six months. Improving job scenario, housing market recovery, merchandising initiatives and post hurricane activities along with efforts to enhance omni-channel capabilities have played an instrumental role in the company’s success.

The stock has surged 39.3% in six months, outperforming the industry’s gain of 37.7% and S&P 500’s increase of 13.7%. Further, a VGM Score of B and long-term earnings growth rate of 14.6% highlight this Zacks Rank #3 (Hold) stock’s inherent potential.



What’s Pushing Home Depot’s Shares Higher?

Home Depot has been implementing several initiatives to drive long-term growth. It remains keen on building the interconnected capabilities and improved fulfillment options by launching its customer order management system and the buy online deliver from store capability. Further, the company is gaining from consistent focus on improving customer experience, solid execution and consistent housing market recovery.

Also, the company has been revamping itself by concentrating on square footage growth and maximizing productivity from its existing store base. Management has implemented significant changes in its store operations to make them simpler and more customer-friendly. We believe these initiatives will induce more traffic to its stores and boost Home Depot’s performance.

Meanwhile, Home Depot has undertaken several initiatives to deliver growth with regard to pro-customers. Evidently, the Compact Power Equipment buyout marked another step toward improving portfolio service offerings for its pro customers and is likely to contribute to the company’s gross margin in fiscal 2017. Additionally, the company’s disciplined capital allocation strategy aids it to make strategic business investments and shareholder-friendly moves.

Home Depot has been reporting strong financial figures since 2008 with steady improvement in revenues and earnings per share. This robust trend continued in third-quarter fiscal 2017, which marked fifth consecutive sales beat with earnings maintaining its five-year trend of positive surprises. Consequently, management raised its fiscal 2017 guidance and anticipates earnings per share to be up nearly 14% to $7.36 in fiscal 2017, up from the previous guidance of 13% growth to $7.29.

Furthermore, analysts are growing bullish on the stock as apparent from the rise in the company’s earnings estimates. The Zacks Consensus Estimate of $7.39 for fiscal 2017 and $9.06 for fiscal 2019 has moved north 2 cents and 66 cents, respectively, in the last 30 days. Also, the estimate for the fourth quarter of fiscal 2017 has inched up by a penny to $1.63.

Looking for Solid Picks in the Same Space, Check These

Some better-ranked stocks in the same industry include Lumber Liquidators Holdings, Inc. LL, BMC Stock Holdings, Inc. BMCH and Fastenal Company FAST, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lumber Liquidators with an impressive long-term earnings growth rate of 27.5% has pulled off an average positive earnings surprise of 113.5% in the trailing four quarters.

BMC Stock Holdings has delivered a positive earnings surprise of 3% in the last reported quarter and surged 32% in a year.

Fastenal with a long-term earnings growth rate of 14% has pulled off an average positive earnings surprise of 1% in the trailing four quarters.

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