Home Depot on Track to Hit Sales Target, $40 Fair Value

Home Depot (NYSE:HD) has held up well despite the sluggish growth in the U.S. housing market. In its latest quarterly results, Home Depot outperformed its closest competitor Lowe’s (NYSE:LOW) registering comparable store sales of 4.2% y-o-y, driven by more spending on maintenance and repair items and supported by storm-related sales. With good customer service and competitive pricing of products, Home Depot is well on track to increase its sales by 2.5% for fiscal 2011 – an outlook it maintained the past two quarters. We expect Home Depot’s market share in plumbing, electrical and kitchen products will improve further as it continues to outperform Lowe’s.

Our complete analysis for Home Depot’s stock is here.

Good Q3 Performance

Home Depot’s total sales for Q3 2011 increased 4.4% compared to same period last year while the sales at U.S. stores improved 3.8% as customers spent more on maintenance and repair items and the company also gained from Irene storm-related sales. The company is also gaining market share at the expense of Lowe’s. Its comparable store sales for Q3 was up by 4.2% versus an increase of only 0.7% for Lowe’s. (See Home Depot Outshines Lowe’s on Maintenance & Repair Spending)

Net profit of $934 million, up 12% y-o-y, for the quarter is also attributable to cost-cutting initiatives coupled with better distribution and customer service by the company.

Home Depot Maintains Sales Outlook

Home Depot has maintained its outlook that sales will increase by 2.5% for fiscal 2011 compared to 2010. It has revised its earnings per share (EPS) forecast positively over the past few months – increasing from $2.24 to $2.38 for the fiscal year. With a focus on cheaper priced products and a strong distribution system, Home Depot may well be on track to achieve its sales target.

While we estimate Home Depot’s Plumbing, Electrical & Kitchen market share will increase from 22.4% in 2012 to around 23% by the end of our forecast period, Trefis members expect an increase from 23.5% in 2012 to 26% during the same period. The member estimates imply an upside of 5% to the Trefis price estimate for Home Depot’s stock.

We currently have a Trefis price estimate of near $40 for Home Depot’s stock, about in line with the current market price.

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