On Tuesday, Jefferies resumed its coverage of Home Depot (NYSE:HD) shares, assigning a Buy rating and raising the price target to $426 from the previous $412. The firm's decision follows the acquisition of SRS, which prompted an update to their estimates.
Jefferies' new price target is based on approximately 27 times the forecasted fiscal 2025 earnings per share (EPS) and around 19 times the forecasted fiscal 2025 earnings before interest, taxes, depreciation, and amortization (EBITDA).
The analyst pointed to several factors supporting the positive outlook for Home Depot. Key among these is the aging U.S. housing stock, which is now over 40 years old on average. This demographic trend is coupled with a growing preference among homeowners to age in place, which is expected to drive home improvement spending.
Additionally, the firm highlighted that approximately two-thirds of the industry's spending is non-discretionary, stemming from necessary maintenance and repairs. Home Depot is positioned to benefit from this trend, particularly through increased spending from professional customers in 2024, which is anticipated to outpace the do-it-yourself (DIY) segment.
Jefferies also noted Home Depot's advanced supply chain as a competitive advantage that differentiates the company's offerings from its rivals. This supply chain capability is particularly relevant as the company laps a 20-year repair and replacement cycle dating back to the early 2000s housing boom.
Lastly, the fundamental shortage of housing is expected to keep home prices elevated, which in turn could support sustained investment in home improvement. Home equity has seen a substantial increase, up around 70% compared to pre-pandemic levels, providing homeowners with additional resources to invest in their properties. Home Depot is seen as well-positioned to capitalize on these market dynamics.
In other recent news, Home Depot has seen significant financial developments, with Stifel raising the target price for Home Depot shares to $380 due to the impact of the SRS acquisition. This acquisition is expected to add $10 billion in annualized revenue and over $1.1 billion in EBITDA for Home Depot.
Stifel's analyst predicts that Home Depot will provide more detailed information during the F2Q24 earnings release. The firm now projects Home Depot's EPS to be $15.04 for FY24 and $15.75 for FY25.
Additionally, the company terminated its $10 billion revolving credit facility, stating that it was no longer necessary. Analysts from TD Cowen and HSBC have adjusted their price targets for Home Depot, with TD Cowen reducing its target to $420 from $440 while maintaining a Buy rating, and HSBC revising its target to $318.00 from $323.00 while maintaining a Reduce rating.
Home Depot also announced the promotion of Jordan Broggi to the position of executive vice president of customer experience and president of online. Furthermore, D.A. Davidson & Co. upgraded Home Depot to a "Buy" rating, with a price target of $395. These are the recent developments in Home Depot's business and financial performance.
InvestingPro Insights
Jefferies' bullish stance on Home Depot is echoed by the company's robust financial health and market performance according to real-time data from InvestingPro. With a sizable market capitalization of $365.38 billion, Home Depot showcases its dominant position in the specialty retail industry.
The company not only trades with low price volatility, which may appeal to investors seeking stability, but it also boasts a consistent track record of dividend growth, having raised its dividend for 14 consecutive years and maintained payments for 38 years. This commitment to shareholders is further underscored by a notable dividend yield of 2.51% as of the last payout.
Investors considering Home Depot's stock will find that it operates with a moderate level of debt, which is a reassuring sign of financial prudence. Moreover, the company's return on assets stands at an impressive 19.11%, indicating efficient use of assets to generate earnings.
While the company's price to book ratio is high at 200.83, reflecting a premium valuation, this may be justified by the company's profitability over the last twelve months and a high return over the last decade, as highlighted by the InvestingPro Tips.
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