Home Depot: Strong Brand, Superb Management, Great Stock

source: Wikimedia Commons

The United States is finally starting to thaw from the brutal winter, and this couldn't come soon enough for retailers. In addition, the housing market continues to strengthen, evidenced by rising home prices across the country. These tailwinds are combining to provide a great deal of support to Home Depot (NYSE: HD  ) , the biggest home-improvement chain in the U.S, as well as close rival Lowe's (NYSE: LOW  ) .

Home Depot is an amazing story. It's a company that managed to turn in a solid first quarter even in the face of adverse conditions. If you're a Foolish investor looking for a high-quality company with a strong brand and excellent management team, you should get to know Home Depot.

Source: Wikimedia Commons

Home Depot's success speaks for itself
Home Depot posted 2.9% revenue growth in the first quarter along with 2.6% same-store sales growth (same-tore sales measure sales at locations open at least one year.) Earnings per share jumped 20% year over year, reflecting the benefits of tight cost controls and an effective share-buyback program.

To illustrate, Home Depot's total operating expenses only increased by 0.5%, far less than its rate of sales growth. And, the company's diluted shares outstanding dropped by nearly 7%, thanks to the $1.2 billion spent on share repurchases in the last three months.

These actions boosted Home Depot's profits in the first quarter, and excellent performance is becoming a habit for the company. In 2013, the company racked up nearly 7% growth in same-store sales, 25% earnings growth, and increased its dividend by 21% at year-end. This was comparable to Lowe's performance last year, which produced 4.8% same-store sales growth and 26% earnings growth. Like Home Depot, Lowe's is very shareholder friends. Lowe's repurchased $3.7 billion of its own stock and paid $733 million in dividends last year. This year, the company plans to buy back $5 billion of its stock.

It's clear that the continued momentum in the housing market and the economy more broadly are lending a helping hand to home-improvement retailers. These trends should continue for the remainder of the year. To reflect this, Home Depot management expects the company to produce 4.8% sales growth and 17% earnings growth, all of which will be made possible by the company's intent to purchase $3.7 billion of its own shares over the rest of the year.

However, Home Depot's results missed Wall Street expectations, and the company took some heat for it in the financial media. Don't be lured into thinking that Home Depot is struggling.

Ignore Wall Street disappointment
After Home Depot reported earnings, most of the attention from the financial media coverage circulated around the fact that the company missed analyst estimates. Revenue missed by about $200 million, and profits came up short by a few pennies per share. But once again, it seems that disappointment over Home Depot's results is only possible with a completely unrealistic view of how the past few months shaped up.

The spring season in the United States has gotten off to an extremely slow start. This has had an undeniable negative impact on retailers. That's especially true for home-improvement retailers, which rely on spring activity for sales. Obviously, analysts should have taken their estimates down a notch or two in light of the fact that brutally cold temperatures persisted well into March and April.

Home Depot Chief Executive Officer Frank Blake acknowledged the winter slowdown, saying in the earnings results that the company was affected by weather. However, he also reaffirmed his outlook for the remainder of the year and insisted the company would hit its guidance. Sales are expected to quickly recover from pent-up demand, and non-weather affected areas of the business continue to look good.

Let Home Depot improve your portfolio
The bottom line is that there's absolutely nothing wrong with Home Depot or its close competitor Lowe's; far from it. In fact, both companies are thriving right now. That's especially true for Home Depot, which wrapped up a great first quarter even with the damage done by the extremely harsh weather. This came after a strong performance last year as well.

Home Depot is growing strong, buys back billions of dollars' worth of its own stock every year, and provides investors double-digit dividend increases annually. Any disappointment from Wall Street over Home Depot is misguided. This is clearly a company with a strong brand and capable management team, and the results speak for themselves.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2969716, ~/Articles/ArticleHandler.aspx, 9/4/2015 4:06:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated 6 hours ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:00 PM
HD $116.60 Up +0.12 +0.10%
Home Depot CAPS Rating: ****
LOW $69.10 Up +0.06 +0.09%
Lowe's CAPS Rating: ****