Home Depot: Why is This Retailer Giant a Buy Right Now?
July 20 2021 - 5:07PM
Finscreener.org
If you are looking to invest in the stock market, it makes sense
to diversify your portfolio by holding a basket of stocks across
sectors. You need to hold growth stocks, blue-chip stocks, and most
importantly income-generating dividend stocks.
For people who are just beginning their investment journey, the
dual strategy of dollar-cost averaging and dividend reinvestments
can help them generate compounded returns over time. Alternatively,
you can also withdraw these dividend payouts to support your living
expenses.
The Dow Jones Industrial Average or Dow Jones
30 has several dividend stocks including Home Depot (NYSE:
HD),
a company that has a solid underlying business, robust financials,
and enviable long-term potential, making it a good bet for 2021 and
beyond.
Home Depot is valued at a market cap of $337
billion
The Home Depot, Inc. operates as a home improvement retailer. It
owns a portfolio of The Home Depot stores that sell building
materials, home improvement products, building materials, lawn, and
garden products, as well as provide installation, home maintenance,
and professional service programs to do-it-yourself and
professional customers.
The company also offers installation programs and provides tool
and equipment rental services. It primarily serves homeowners,
professional renovators/remodelers, general contractors, handymen,
property managers, building service contractors, and specialty
tradesmen, such as electricians, plumbers, and painters. As of
January 31, 2021, the company operated 2,296 retail stores in the
United States, Canada, Mexico, and other countries.
Home Depot is valued at a market cap of $337 billion. In 2018,
the company aimed to deploy $11 billion to invest across its
physical stores, employees, supply chain as well as to enhance the
overall digital experience. These investments bore fruit amid the
pandemic as home improvement projects surged during COVID-19,
allowing Home Depot to increase sales by 20% year over year in
2020. Comparatively, earnings also grew by 16.5% last year.
In May 2021, Home Depot increased its dividends by 10% and
announced a share repurchase program of $20 billion.
Stellar quarterly results
In the fiscal first quarter of 2022 that ended in April, Home
Depot’s sales were up 33% year over year while its net earnings
surged by an impressive 85%.
During the earnings call, Home Depot CEO Craig Menear said,
“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.”
This strong demand has continued in the last quarter allowing
Home Depot to aggressively buy back shares as well as increase
payouts, increasing shareholder wealth in the process. HD stock
currently provides investors with a forward yield of 2.05%.
Analysts tracking HD stock expect sales to
rise by 8.6% year over year to $143.35 billion in 2022 and by
2% to $146.34 billion in 2023. Wall Street also forecasts its
earnings to rise at an annual rate of 10.6% over the next five
years.
What next for HD stock investors?
Home Depot is trading at a forward price to sales multiple of
2.36x and a price to earnings multiple of 22.2x which seems
reasonable. The company’s total debt of $42 billion is high but HD
also has over $6.6 billion in cash reserves reflecting a vigorous
liquidity position.
People are maintaining their spending habits developed during
COVID-19, as economies continue to reopen. This trend continues to
benefit Home Depot. Further,
a low-interest-rate environment will drive homeownership higher
allowing Home Depot to reach its financial goals at an accelerated
pace.
In the last 10 years, HD stock has gained over 1,000% compared
to the S&P
500 gains of 302%, while the Dow Jones 30 has surged 251% in
this period. Analysts continue to remain optimistic about Home
Depot stock and have a 12-month average price target of $346 which
is 10% higher than its current price.
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