A stock may often be off investors’ radar if its share price movement hasn’t been very impressive, despite positive estimate revisions and solid growth prospects. Investors are advised to uncover such hidden gems, given their potential for a big move in the future.
Well, it looks like we just unveiled one such stock – The Home Depot, Inc. HD, which has enough reasons for investors to hold on to it, even though its stock price movement doesn’t look attractive at present.
Starting with its efforts to draw traffic, this home improvement retailer has been revamping itself by concentrating on square footage growth and maximizing productivity from its existing store base. Additionally, the company has implemented significant changes in its store operations to make them simpler and more customer-friendly. Further, its focus on developing merchandising tools and increasing e-commerce investment to boost top-line growth and enhance market share, bodes well.
Apart from this, Home Depot has been implementing several initiatives to drive long-term growth. In response to the evolving retail environment, where digital and physical stores go hand in hand, the company remains keen on building its interconnected capabilities. Thus, it is constantly investing in content, developing its website and improving mobile experience to provide a better customer experience. We expect these initiatives to drive the company’s overall performance in the long run.
Coming to Home Depot’s capital allocation plan, the company remains committed toward making investments to develop its business while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks. Driven by all these factors, Home Depot retained its four-year long trend of consistently beating earnings estimates, delivering a positive earnings surprise yet again in second-quarter fiscal 2016. Also, the company’s top line was ahead of estimates and grew year over year, backed by the persistent strength in the housing market.
Notably, the company reached a key milestone in the quarter, recording the highest quarterly sales and net earnings. Following the spectacular quarter, management also raised its earnings outlook for fiscal 2016, leading to an uptrend in our earnings estimates. The Zacks Consensus Estimate for fiscal 2016 and fiscal 2017 has inched up 0.6% and 0.8% to $6.32 and $7.16, respectively, over the past 60 days.
While these factors instill confidence in Home Depot’s ongoing performance, intense competition from specialty stores and mass retailers as well as the impact of soft economic recovery on discretionary spending may prove to be deterrents.
Nonetheless, we believe that the Zacks Rank #3 (Hold) company’s robust fundamentals and growth drivers should be able to counter these hurdles, enabling it to stand firm and sustain its momentum. So, don’t you think you should hold on to the stock for now?
Stocks to Consider
Investors can also count on better-ranked retail stocks like BMC Stock Holdings, Inc. BMCH, Burlington Stores, Inc. BURL and Ross Stores Inc. ROST, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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