February 16, 2012
Welcome to the Stock of the Day for February 16, 2012. Today, we're going to take a look at The Home Depot Inc. (HD), the world's largest home improvement specialty retailer. Home construction and disposable income is starting to pick up again, so will this have an effect on this company's profits? Let's find out.
Company Overview: This Company's motto is "Home Improvement Made Easy." That's because Home Depot is a one-stop shop for building and updating homes, with products available through both physical "big box" stores and an extensive online website. The company also offers tool and truck rental services as well as its own credit center to facilitate financing large purchases. The company has store in all 50 U.S. states as well as in Mexico, Canada and China.
Industry Breakdown: In terms of market capitalization, the Home Depot is the second largest company in the Home Improvement Stores Industry. And, out of the 11 companies in this industry, the Home Depot comes out on top in regards to most fundamentals. Most notably, the company's P/E to growth and dividend yield (2.6%) are the best in the industry; the company's return on equity is second-best. The company is also in the top half in terms of sales growth, earnings growth and long-term growth rate. Lowe's Companies Inc. (LOW), its main competitor, can't even come close
Spring Cleaning: What's interesting about Home Depot is that in terms of sales, Christmas comes in spring. In fact, last year the company branded its own Spring Black Friday event, which fell on four different weekends on a market-by-market basis. The company announced sales of everything from outdoor grills to lawn care, and hired an additional 60,000 workers to deal with the extra large "spring cleaning" crowd. This year, the company is ramping up its hiring efforts and plans to add 70,000 spring season associates.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past 12 months, this stock has steadily improved from a "hold" to a "buy". Most importantly, its buying pressure has increased as the company has piqued investors' interest. The company's return on equity, operating margin growth and earnings growth is also pretty solid. Nonetheless, there is definite room for improvement in terms of sales growth, earnings surprises and cash flow. This is a B-rated stock.
Bottom Line: I consider this stock a "buy," primarily due to its top-notch buying pressure.