A Do-It-Yourself Analysis

Home Depot (NYSE:HD), the world's largest home improvement specialty retailer, reported another excellent quarter today. Sales were up 11.2% in the fourth quarter, and net income rose 9.5%. Widely watched same-store sales, a measure of success for stores open for a year or more, rose a healthy 4.6%. So, here's a do-it-yourself analysis of why the stock is down 4% today.

For starters, the market is down today. Because the results met analyst estimates, there was no earnings surprise to spark buying.

Next, take a look at the quickly growing do-it-for-me service, where sales increased 20.4% from the comparable quarter last year. While strong double-digit percentage growth for that division is expected to continue, the company still forecasts that overall fiscal 2006 revenue will rise 9% to 12% and earnings will increase 10% to 14%. Let's be honest -- that kind of growth looks pretty staid against the likes of Taser (NASDAQ:TASR), and, because it is nothing unexpected, it is already priced into the stock.

Finally, compare Home Depot to prime competitor Lowe's (NYSE:LOW) -- which reports earnings tomorrow. Home Depot is growing revenue more slowly, at 12.8% versus 16.4%.

So, let's turn the do-it-yourself analysis into finding the strengths of Home Depot.

First, Home Depot sells for 18 times trailing earnings; Lowe's trades for 22 times. That's a big premium.

Home Depot has higher operating margins, at 10.8% versus 10.3%, and higher profit margins, at 6.8% versus 6.0%. When it comes to making money, Home Depot turns more of every dollar into bottom-line income.

Home Depot's long-term debt and cash stand at $2.2 billion total; Lowe's has cash of $700 million and total debt of $3.7 billion. Even after expanding its use of debt over the last year, Home Depot still has a stronger balance sheet.

So, the do-it-yourself analysis looks good for Home Depot -- and the stock market has not overlooked these results. Home Depot stock is up 17.7% from where it was 52 weeks ago, while Lowe's is up 0.6%.

Home Depot is signaling another strong performance for 2006. At 18 times earnings, and a double-digit percentage increase in earnings on the way, the stock is value-priced.

Want more on Home Depot? See:

• Home Depot's New Apprentice
• The Giant Lumberjack Lumbers On
• Home Depot Fights Back

Fool contributor W.D. Crotty owns stock in Home Depot -- and has this stock in a dividend reinvestment plan. W.D. does not own Lowe's (no kidding!) or Taser. Click here to see The Motley Fool's disclosure policy .