Put Home Depot on Your “Honey-do” List

Diane is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Home Depot (NYSE: HD) recently checked a trio of items off its to-do list: post better than expected earnings, raise the dividend, and implement a share buyback.

The Atlanta based home improvement chain just reported that net income in the latest quarter soared 32% to $1.02 billion, or 68 cents per share. That was up from $774 million or 50 cents a year earlier.  Revenue roared ahead by 13.9% to $18.2 billion. Profit was 67 cents, handily beating the 64 cents analysts had expected. The revenue number also surpassed Wall Street estimates of $17.69 billion.

The home improvement behemoth plans to buy back some $17 billion of its own shares. It also raised its quarterly dividend 34% to 39 cents from 29 cents a share.  

For the year, the world’s No. 1 home improvement chain forecast earnings of $3.37 per share, lower than analysts’ expectations of $3.49. That somewhat disappointing figure followed similar uninspiring guidance from rival Lowe’s (NYSE: LOW).

Lowe’s, the world’s second largest home improvement chain, posted Q4 earnings of 26 cents per share, down from 29 cents in the year-earlier period. Revenue slipped 5%. Lowe’s outlook for fiscal 2013 was tepid. The company expects to earn $2.05 a share. Analysts were estimating more near $2.10 per share.

Lowe’s has trailed behind Home Depot, its largest competitor, for some time. Lowe's is the midst of its own makeover. In efforts to improve its appearance and performance, Lowe’s has closed some stores, curtailed openings, slashed jobs and streamlined its supply chain. Not exactly the kind of moves in line with growth and expansion.

But, both retailers should enjoy brisk traffic and sales in the months ahead. Superstorm Sandy’s wrath, which damaged or destroyed more than 600,000 homes in New York and New Jersey alone, will be felt for a good while as homeowners repair and homebuilders build.

In addition, nearly four months after the ravaging storm, New Jersey just received its $50.7 billion Hurricane Sandy aid package. Those funds are just beginning to be put to work and should provide plenty of business to both Home Depot and Lowe’s. Take it from someone who lives on the Jersey shore. The repairs have been slow. It will take years and years before any sense of normalcy is attained. And kudos to Lowe’s for handing out free Duracell batteries and having a Tide laundry truck on hand at Jersey Shore locations following the monster Halloween hurricane.

But it's Home Depot who is energized and cleaning up in the storm's aftermath.

Home Depot’s following includes do-it-yourself homeowners and small contractors. HD is nicely benefiting from the improving housing market picture. Home sweet home has been anything but for scores of Americans the last several years, but things are changing. Home prices are rising across the country, in part because builders aren’t putting homes up fast enough. Inventories are down and sales of existing homes are rising. Plus, a plethora of individuals are waiting around in their residences for a true housing market rebound (i.e. better selling price), and some are simply spending more time at home. Both camps are shelling out some big bucks on improving both the interior and exterior of their abodes.

Lower pricing, better customer service and more centralized distribution centers have helped Home Depot chip away at Lowe’s market share. The industry leader’s return to targeted marketing and merchandising, plus its quick move to cut costs in the wake of the bursting housing bubble, have also set Home Depot apart.

Home Deport remains the best way to play the housing market recovery via its stash of housing supplies. And, it continues to widen its lead over Lowe’s. Home building stocks have gotten ahead of themselves, but dabbling in Well Fargo (NYSE: WFC), the country’s largest mortgage lender, is one way to go. Wells continues to dominate mortgage markets as housing is crawls out of its six-year slump. This Warren Buffett favorite has posted a profit for 13 consecutive quarters. Among big banks, more conservative Wells fared the best during the financial crisis, giving it a leg-up on its peers. But banks in general have left myriad market participants leery of the sector. So, head to Home Depot.

Perhaps Home Depot is being conservative in its outlook for 2013. If so, investors could be handsomely rewarded in upcoming quarters. Whatever’s on your honey-do list, make sure you pencil in “Buy HD.”


DianeAlter has no position in any stocks mentioned. The Motley Fool recommends Home Depot, Lowe's, and Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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