Optimistic Revenue Growth Expectations Through 2021 Will See Home Depot’s Value Rise >10%

+2.98%
Upside
392
Market
404
Trefis
HD: Home Depot logo
HD
Home Depot

Home Depot (NYSE:HD) is the largest home improvement retailer in the U.S., with approximately a 25% market share. The retailer has enjoyed solid growth so far in 2016, reaffirming its guidance of 6.3% sales growth and 4.9% comp sales growth for the full year, and now expects full-year EPS to grow 15.9% to $6.33, up from the estimate of $6.31 after Q2, the estimate of $6.27 after Q1, and the estimate of $6.12-$6.18 after 2015 full-year results announcements.

Much of this growth is fueled by booming home improvement spending. Low inventory of homes for sales has prompted home price appreciation and led to bidding wars, which, in turn, has prompted owners of houses to add value to their present homes through remodeling and repairs. The declining months’ supply metric indicates that the current for sale inventory wouldn’t last as long as it has historically, given the current sales rate, if no additional new houses are built. This has boosted prices of homes, which are also rising due to the low mortgage rates and the gradual appreciation after the period of recession. The low supply of homes has been a major factor in driving the home prices up. Low activity of construction companies has meant that there is a mismatch between demand and supply of homes.

As a result, home renovation has bounced back in a big way, more than new home construction, probably also as renovation can be done gradually, in phases. According to a report from Harvard’s Joint Center for Housing, home improvement and repair expenditures will grow by 8% by the start of next year, which is much larger than the historical average growth rate of 4.9%. Expense for repairs and remodeling is expected to cross $300 billion this year, surpassing the previous high of ~$285 billion in 2007, and grow further in 2017.

This will have a direct positive impact on Home Depot, which expects to cross $100 billion in annual sales by 2018, up from slightly less than $90 billion last year. The industry-leader in home improvement estimates the addressable domestic consumer market at approximately $180 billion, and growth could further come from the surge in repair, remodeling, and renovation activities. The surge in home improvement spending could continue in the near future, and if Home Depot’s revenue rises at a CAGR of 6.4%, as opposed to our current estimate of 4.4% CAGR growth, the price estimate for the company will rise by more than 10%.

HD Q&A 14-1

Relevant Articles
  1. What’s Next For Home Depot Stock After An Upbeat Q3?
  2. With The Stock Almost Flat This Year, Will Q2 Results Drive Home Depot’s Stock Higher?
  3. With The Stock Flat This Year, Will Q1 Results Drive Home Depot Stock Higher?
  4. Down 8% This Year Will Home Depot Stock Rebound After Its Q3?
  5. Home Depot Stock To See Little Movement Past Q2
  6. Why Homebuilder Stocks Are Soaring This Year

Have more questions on Home Depot? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Home Depot

Get Trefis Technology