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Home Depot stock was one of the big winners of the pandemic. But its latest earnings report shows it's not losing any steam even as the economy opens back up.
Stuck at home with no place to go - and in many cases, no desire to go anywhere anyway - Americans have increasingly turned to home improvement projects to fill their time. They have headed down to the nearest Home Depot and loaded up on supplies to spruce up their homes and gardens, and as a result, Home Depot is reporting monster sales and earnings increases.
The home improvement leader reported first-quarter earnings Tuesday (May 18) morning, and it was a blowout quarter. Home Depot reported sales of $37.5 billion for the first quarter of fiscal 2021, up 32.7% from the first quarter of fiscal 2020. Same-store sales were also up 31%, and sales here in the United States were up 29% year over year.
Total profits were up $3.86 per share, a gain of 85% over the $2.08 per share earnings of 2020. Earnings blew away the consensus estimates from Wall Street analysts who expected Home Depot to have sales of $34.82 billion and profits of just $3.08 a share.
While this proves Home Depot was a standout stock during the pandemic, what's more important are its plans to keep it up.
And it's shaping up to be a growth stock you can own for the long term...
Why Home Depot Can't Miss Right Now
What stands out most in the latest earnings report is what Home Depot is doing to capitalize on its recent growth.
It's starting to put more money back into shareholder pockets, for starters. Home Depot had stopped shareholder buybacks last year because of the pandemic. Management said that they would start repurchasing shares in an opportunist manner this year.
The board also raised the dividend by 10% recently, and the stock now yields over 2%.
They're also expecting more growth even as people feel safe to leave their homes again.
CEO Craig Meneer commented on the earnings report telling us that "Fiscal 2021 is off to a strong start as we continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects."
Home Depot should continue to benefit from the housing boom as the pandemic nears an end. Home supplies were low before the pandemic hit, and the surge in home buying has made supplies even tighter across the United States.
Home Depot has market centers all over the country that deal with builders and contractors, and the current trends suggest that business will be robust as we enter the prime building months.
While housing starts slowed down a bit month over month in April due to supply shortages, they were up 65% on a year-over-year basis. The National Association of Home Builders reported earlier in the week that homebuilders remain very confident in the future. Some have been slowing starts intentionally to manage supply chains of products like lumber that have been in short supply.
Housing starts will accelerate once supplies are not in short supply.
Why Home Depot Is a Buy and Hold
Home Depot has been one of the premier growth stocks over the last decade. Investors have earned about 27% a year if they bought and held shares of the home improvement retailer. While home improvement may not sound like the most exciting business in the world, every $1,000 invested in Home Depot ten years ago is now worth over $11,000.
You might think the growth story is already baked into the price of the stock, but it continues to prove analysts wrong.
Analysts have been raising their estimates for Home Depot's profits in 2021 and 2022, and after this impressive performance, we expect more increases are coming soon. Current estimates are for earnings of $12.96 in 2021 and $13.98 in 2022.
We expect that these numbers will start being increased later this week.
Home Depot is one of the few retailers that is pretty much Internet-proof. Ordering sheets of plywood or parts for an emergency do-it-yourself plumbing project online makes little to no sense. The company's purchasing power gives it room to negotiate on price with suppliers, and passing some of the savings on to customers keeps its prices competitive with online retailers.
Home Depot has succeeded in large part because of a passionate belief in customer service. Home Depot makes sure its employees are knowledgeable about the products they sell and can help steer customers in the right direction when choosing supplies for a project.
In recent years, a combination of attention to customer service and opportunistic expansion like its purchase of home goods retailer The Company Store should help shares of Home Depot continue to be a standout stock.
Three Stocks Even Better Than HD Stock
Chief Investment Strategist Shah Gilani just held his first-ever stock-picking lightning round event - running through more than 50 stocks to tell you if they are stocks to buy or stocks to sell.
Dozens are overpriced and overhyped - you should ditch them ASAP.
But Shah says THESE three stocks are "screaming buys."
All three are trading at a discount... they're under-the-radar companies most people haven't even heard of... and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.