Home Depot Focusing on DYI Opportunity Adding Upside to Stock
Home Depot (NYSE:HD) is the world’s largest retailer of home improvement products, primarily competing with Lowe’s (NYSE:LOW) in this business. Home Depot boasts 2,244 stores, of which 1,976 (88%) are in the US. The company offers a wide range of products and installation services to both individual home owners and professional builders.
We have a $36.65 price estimate for Home Depot, which is slightly ahead of the current market price.
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Home Depot levered to a US recovery in spending
Home Depot is highly exposed to a recovery in US retail spending as 88% of its stores are based in North America. Though the housing collapse hurt Home Depot, it benefits from the rebound in consumer spending, which accounts for around 70% of the US economy. While consumers are still not spending on expensive remodeling, they are starting to spend on DYI projects and small furnishings. The company indicated this was the case in its November earnings and in a December announcement where it raised its full year guidance. [1]
We think this bodes well for the company and could provide a lift as spending data comes in over the next few months as it is the largest retailer of home improvement products. Retail sales increased for a sixth straight month in December with holiday sales up by 5.5% as compared to last year. These signs show that consumer sentiment is improving with economic recovery and consumer spending can be expected to increase into the next year. We wrote an article related to this last exploring how the Trefis community expects Lowe’s earnings to pick up on plumbing division (See Lowe’s Positioned for Market Share Gains, Adding Upside to Stock Value).
“How to” campaign targets Do-it-Yourselfers
Home Depot is trying to tap this market with the recent launch of its “How to” campaign. It has launched a new online community where do-it-yourselfers can discuss home improvement projects and share their expertise with other members. The community also includes experienced Home Depot store associates from across the country, who can assist customers with their home repair projects. The company believes that this community can be a “gathering place for home owners, professional contractors, product manufacturers and weekend DIYers”. [2]
One division that will do well with a pick up of DYI is plumbing, electrical and kitchen. This accounts for near 31% of our $36.65 price estimate for Home Depot.