Home Depot (HD) recently reported fourth quarter and fiscal 2014 results. The company's fourth quarter revenues of $19.2 billion was up 8.3% versus fiscal 2013, while diluted EPS was up 43.8%. Comparable Store Sales for the fourth quarter was up 7.9%. Home Depot has shown good earnings growth over the past few years and its EPS has increased from $3.00 in FY2012 to $4.71 in FY2014. I believe this growth is likely to continue going forward. Here's a look at the company in detail.
The Home Depot is the world’s largest home improvement retailer based on net sales. Home Depot sells a wide assortment of building materials, home improvement products and lawn and garden products and provide a number of services. The following table shows revenue, EPS and other key metrics of the company over the last couple of years.
Table1: Financial Data of Home Depot Inc.
Source: Gurufocus Value Screens
The company continues to see broad based growth across all its geographies. Last quarter, Home Depot's all three U.S divisions exceeded their sales plan and all 19 regions saw mid-single digit comp growth or better. The company's sales were aided by a strong response to its holiday décor, gift center as well as its Black Friday events during the quarter. It's online business also posted strong performance and grew over $1 billion (up 36% from year ago period).
Internationally, both of the company's Mexican as well as Canadian businesses posted positive comps in local currency for the quarter, making it 45 and 13 quarters in a row for positive comps, respectively. The company also completed the acquisition of HD supply hardware solutions, formerly known as Crown Bolt, in the fourth quarter. Overall, 2014 was a record year for the company both in terms of revenues and margins.
Going forward, continued tailwind from housing recovery and GDP growth will help the company in 2015. The company is expecting comparative sales growth of ~4.5% in the US and between 3.3% to 4.5% internationally. In addition, the company is also planning to open six new stores and expand the operating margins by 60 basis points. The company's board also announced a 26% increase in its quarterly dividend of $0.59 per share and authorized a new share repurchase program of $18 billion.
The company's stock price has gained 48% in the last year significantly outperforming the S&P 500. Home Depot is benefiting from recovery in housing market. New housing starts in the US are coming between 1.0 – 1.1 million monthly currently, which is still below long term average of $1.5 million. This means there is ample scope for housing recovery to continue and Home Depot's sales and earnings to grow.
Home Depot is trading at 21.94 times FY2015 EPS. According to sell side estimates, the company’s EPS is expected to grow 14.19% in the current fiscal year and 14.53% next fiscal year. The company has a dividend yield of 1.70%. Out of 31 analysts covering the company, 19 are positive and have buy recommendations, and 12 have hold ratings. The company is expected to maintain its high EPS growth over the next few years as housing recovery continues to take hold. Given its high EPS growth rate, I believe the stock will continue to outperform S&P500 over the next couple of years I recommended buying the stock.
