A Few Key Takeaways From Home Depot's Sell-Side Presentation

Home Depot Inc HD last week hosted its annual presentation and Q&A session for the sell-side investment community which received a mixed reaction from Street analysts.

The Analysts

Raymond James' Budd Bugatch maintains an Outperform rating on Home Depot with an unchanged $205 price target. (See his track record here.)

Bank of America's Elizabeth Suzuki maintains a Neutral rating on Home Depot with an unchanged $195 price target. (See her track record here.)

Raymond James: Nothing To Worry About

Many investors hold a negative bias towards housing stocks with Home Depot being no exception, Bugatch said in a note. However, management comments during the presentation reinforces the analyst's view that the U.S. home improvement sector stands out within the entire real estate group and remains favorable.

Here is a summary of some of Raymond James' takeaways from Home Depot's presentation and Q&A session:

• Home Depot CFO Carol Tome highlighted a moderation in some housing metrics but this doesn't necessarily impact home improvement buyers.
• Some of the more important metrics for the home building sector remain encouraging, including aging housing stock, home price appreciation, GDP growth.
• Sales of bit ticket leading indicators like flooring aren't showing any negative changes.
• Better connecting stores to the digital business resulted in an acceleration in traffic, sales and conversion.
• The company's recent $3.5 billion debt issuance will be used to support an increase in share repurchases from $8 billion to $10 billion.

Bank Of America: Valuation Concerns

Home Depot's commentary that the macro environment for the home improvement segment of the housing sector remains solid is a view shared by Bank of America, Suzuki said. The research firm also holds a view that these trends will decelerate slightly in 2019, however, which implies Home Depot's stock multiple will unlikely expand next year as earnings growth will soften.

Bank of America's $195 price target is based on a P/E multiple of 19 times estimated 2019 EPS, which is in line with the stock's five-year average.

Price Action

Shares of Home Depot closed Monday at $171.69.

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