How Home Depot Is Winning And Could Keep Momentum

Home improvement retailer Home Depot Inc HD reported first-quarter earnings that showed strength in many areas. Analysts sized up the earnings in recent updates and included several price target increases. 

The Home Depot Analysts: Raymond James analyst Bobby Griffin reiterated an Outperform rating and a price target of $350.

RBC analyst Scot Ciccarelli reiterated an Outperform rating and raised the price target from $377 to $386.

Morgan Stanley analyst Simeon Guitman reiterated an Overweight rating and raised the price target from $340 to $345.

Telsey Advisory Group analyst Joseph Feldman reiterated an Outperform rating and a price target of $370.

Earnings Takeaways: Thirteen of Home Depot’s of 14 product categories posted gains of 20% year-over-year or more. Griffin noted that some larger ticket items saw more than 50% year-over-year increases such as appliances, vinyl flooring and vanities.

Same-store sales were up 19.8% in February, 36.2% in March and 34.3% in April.

One key takeaway for Griffin was the Pro segment outpacing do-it-yourself (DIY) for the first time since the COVID-19 pandemic began, which could be a key trend to watch going forward.

Traffic was up 19.1% for Home Depot in the first quarter, Ciccarelli highlighted in an updated note. People are making more trips to Home Depot and the company is likely seeing new customers in their stores.

“Housing demand is dramatically outpacing supply,” Gutman said.

Gutman said consumer metrics continue to favor Home Depot with growth in the DIY segment.

Lumber inflation was a concern for gross margins but Gutman said they came in better than expected.

“Demand for home improvement remains robust, as DIY customers continue to take on home improvement projects and Pros have seen projects resume and their backlogs build after pausing this time last year,” Feldman said.

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What’s Next: Customers taking on more complex projects and increased homeownership could be trends to watch for Home Depot, Griffin notes.

“Home Depot continues to exceed expectations and we believe the company has a solid path towards continuing this trend in 2021,” Griffin said.

Ciccarelli is raising the price target thanks to continued momentum and growth in several sectors continuing.

“With 4 consecutive quarters of 25%+ comps and QTD trends at 30%+ on a two-year basis, business remains very robust,” Ciccarelli said.

Gutman says the second quarter could be a key to watch for Home Depot with tough comparable sales. The analyst sees comps coming flat in the second quarter or up in the lower single-digit range.

“Home Depot commented that in the first two weeks of May the two-year stacked comp was running over 30%, implying a comp up at least MSD vs. 24.6% in May last year,” Feldman said.

The analyst sees Home Depot benefiting from the continued housing boom and increased remodeling activity.

HD Price Action: Shares of Home Depot are down 1.14% to $314.14.

(Photo: Home Depot)