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Home Depot Inc. (HD) has an impressive record of beating quarterly earnings expectations, which it continued in its fiscal second quarter 2012 by surpassing the Zacks Consensus Estimate by 4.1%. The home improvement retailer has also been paying a quarterly dividend for over 100 consecutive quarters, currently yielding nearly 2.05%.
Shares of this Zacks #2 Rank (Buy) have gained approximately 79.3% since October 3, 2011 on the back of robust top-line growth, continued upside in comparable store sales, a raised fiscal 2012 outlook and a decent dividend yield.
Fiscal 2012 Second Quarter Beats
On August 14, Home Depot announced fiscal 2012 second-quarter earnings of $1.01 per share, surpassing the Zacks Consensus Estimate of 97 cents. Quarterly earnings climbed 17.4% from last year’s 86 cents, primarily driven by comparable-sales growth and a strong operating performance.
Net sales inched up 1.7% to $20,570 million, but fell short of the Zacks Consensus Estimate of $20,730 million. Sales at the company’s comparable stores marginally improved 2.1%, while comparable store sales in the U.S. grew 2.6%.
Gross profit increased 2.2% to $7,026 million from $6,876 million in the prior-year quarter. Consequently, gross profit margin expanded by 20 basis points (bps) to 34.2%.
Operating profit grew 12% to $2,569 million, compared with $2,294 million in the year-ago period. Operating margin expanded 120 bps to 12.5% compared with 11.3%. The improvement in operating margin was primarily driven by elevated gross profit margin and effective cost management.
Following the strong quarterly results, management raised its fiscal 2012 earnings guidance to $2.95 per share, an increase of 19% from last year’s $2.47 and up from the earlier forecast of $2.90.
Earnings Momentum Increases
Following Home Depot’s sturdy earnings beat and encouraging outlook, analyst sentiments have remained favorable. The Zacks Consensus Estimate for fiscal 2012 rose 1.7% to $2.95 per share in the last 30 days as 11 of 20 estimates moved higher. This represents year-over-year growth of 19.6%.
The Zacks Consensus Estimate for fiscal 2013 increased 1.5% to $3.36 per share over the same time frame, as 19 of 23 estimates moved upward, reflecting growth of 13.7% year-over-year.
Home Depot rewards its shareholders through regular quarterly dividends and share repurchases. Recently, the company announced a quarterly dividend of 29 cents per share. This yields a solid 2.05%, while the company has a payout ratio of 40%. In contrast, the average dividend yield of the industry is 0.5%.
Last quarter, the company bought back nearly 23.6 million shares, valued at approximately $1.5 billion. Through the rest of the fiscal year, the company intends to repurchase shares worth $1.4 billion.
Valuation looks reasonable for Home Depot, with shares trading at 19.2x 12-month forward P/E, on par with its peer group average. However, on a price-to-book basis, shares are currently trading at 4.9x, a 40% premium to the peer group average of 3.5x.
Nevertheless, the stock also looks attractive given a trailing 12-month ROE of 23.8%, which is higher than the peer group average of 13.5%. The company’s long-term estimated earnings per share growth rate also remains strong at 13.7%.
Chart in a Growth Trend
Charts of this home specialty retailer show a continuous rise in the stock price since October 2011, gaining nearly 79.3% and reaching its 52-week high of $57.18 on August 17, 2012. The stock has consistently fared better than its 200-day moving average since October 18, 2011. Barring occasional pullbacks, the stock has also traded above its 50-day moving average since October 5, 2011.
With a market capitalization of $85 billion, Home Depot has also outperformed the S&P 500 Index since September 19, 2011. The year-to-date return for the stock is roughly 34.4% compared with a 10.7% return from the S&P 500 index.
Based in Atlanta, Georgia, Home Depot is the world’s largest home improvement specialty retailer with 2,252 retail stores across the globe, offering a diverse range of branded and proprietary home improvement items, building materials, lawn and garden products, and related services. The company typically serves three primary customer groups: Do-It-Yourself (D-I-Y), Do-It-For-Me (D-I-F-M) and Professional Customers since 1978. The company operates across all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces, Mexico, and China.