Home Depot Inc. (NYSE: HD) stock was up 6.1% this morning (Tuesday) from yesterday's close, and touched a 52-week high of $88.72 after the company's second-quarter profits and earnings per share (EPS) topped analysts' estimates.
HD announced EPS of $1.52 on revenue of $23.81 billion. That beat consensus estimates of $1.45 per share on revenue of $23.61 billion. Last year, the company reported EPS of $1.24 during the second quarter. Revenue was up 5.7% from the previous year.
Profit for the quarter was $2.05 billion, which was up from $1.8 billion last year. Same-store sales in Q2 were up 5.8%. Analysts had been expecting same-store sales growth of just 4.4%.
The company noted that the number of transactions increased 4.2% to 409.7 million. On those transactions, the average spent per purchase was up 1.8% to $58.43.
Home Depot also raised forward guidance in today's report, saying it expects EPS of $4.52 for the full year, which is $0.10 higher than its previous projection. Sales figures were kept in line with previous projections.
HD said that it will be continuing its $7 billion share buyback for 2014. It has already bought back about $3.5 billion in shares.
For Home Depot, the rough winter hampered sales earlier in 2014, but today's report shows that the company rebounded enough in the spring to compensate. The company said that a late spring led to higher sales of yard merchandise in the second quarter.Home Depot NYSE: HD Aug 19 12:27 PM loading chart... Price: 88.68 | Ch: 5.09 (5.7%)
Aside from last quarter's weather-induced sales dip, Home Depot has now beaten earnings estimates in four of the last five quarters.
"In the second quarter, our spring seasonal business rebounded, and we saw strong performance in the core of the store and across all of our geographies," Chairman and Chief Executive Frank Blake said.
The company has also benefitted from rising home prices, which has consumers spending more on home renovations. And that is the major key for the company moving forward in 2014...What's Next for HD Stock in 2014
Through mid-April, the HD stock price was down more than 8% year to date, as investors reacted to slow winter sales. Since then, however, the stock has gained 15% to today's high of $88.72. In the last 12 months HD stock is up more nearly 18%.
But just because HD is trading at a 52-week high doesn't mean this stock has reached its peak. One of the biggest reasons for HD stock's growth is the current housing recovery. While it is moving slower than many expected, the uptick in housing prices is benefitting some retailers like Home Depot and its competitor Lowe's Companies Inc. (NYSE: LOW).
"This strong performance gives us further confidence that Home Depot can handle a slower paced housing market recovery on strong execution," Citigroup Inc. analyst Kate McShane wrote to clients.
"[T]here remains huge pent-up demand for housing repair and maintenance in the aging U.S. housing stock," Credit Suisse analysts wrote to clients this week. "[I]n our view, this remains the sector to be in, with significant deferred spending, nice oligopoly behavior with little square footage growth, much improved in-stock and display execution, particularly from Home Depot, and more focus and likely success, albeit early, at gaining share in the Pro market."
Today, analysts at Morgan Stanley (NYSE: MS) raised their price target on HD stock to $92 from $90.
They're not the only ones bullish on HD stock, though. According to a recent survey by Thomson/First Call 10 analysts currently rate HD stock as a "Strong Buy," 11 rate it a "Buy," eight rate it a "Hold," and none rate it as an "Underperform" or "Sell."
If Home Depot can continue this quarter's sales growth through the fall and reach the new guidance figures it announced today, HD stock should continue higher in 2014. Growth in the housing market will only help drive the HD stock price as well.
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