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Category: Stock Market and The Home Depot
Date: 26 February 2020 Stock Price: $235.24 We take a look at the 4th quarter 2019 earnings report of the world's largest home improvement company, The Home Depot. Has the continued economic growth in the USA benefited the group? At the end of the fourth quarter, the Company operated a total of 2,291 retail stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. The Company employs more than 400,000 associates
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About The Home Depot
When The Home Depot was founded in 1978, Bernie Marcus and Arthur Blank had no idea how revolutionary this new “hardware store” would be for home improvement and the retail industry.Today, we’re proud to be the world’s largest home improvement retailer. In more than 2,200 stores across North America, we aspire to excel in service – to our customers, associates, communities and shareholders. That’s what leadership means to us. That's The Home Depot difference. Our founders’ vision of one-stop shopping for the do-it-yourselfer came to fruition when they opened the first two Home Depot stores on June 22, 1979, in Atlanta, Georgia. The first stores, at around 60,000 square feet each, were cavernous warehouses that dwarfed the competition and stocked 25,000 products, much more than the average hardware store at that time.
Today, The Home Depot is the world’s largest home improvement retailer with nearly 400,000 orange-blooded associates and more than 2,200 stores in the U.S., Canada and Mexico. The typical store today averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer, professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.
Today, The Home Depot is the world’s largest home improvement retailer with nearly 400,000 orange-blooded associates and more than 2,200 stores in the U.S., Canada and Mexico. The typical store today averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer, professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.
Overview of The Home Depot's 4th quarter 2019 earnings report
The data refers to the latest quarter unless specified otherwise
- Net sales: $25.782 billion (down from $26.491 billion for the same quarter of the previous year)
- Net sales decreased by -2.7% over the last 12 months
- Cost of sales: $17.046 billion (down from $17.464 billion for the same quarter of the previous year)
- Cost of sales decreased by -2.4% over the last 12 months
- Some margin pressure on The Home Depot as their revenues declined by more than their cost of sales
- Net earnings: $2.481 billion (up 5.8% from $2.344 billion for the same quarter of the previous year)
- Diluted earnings per share: $2.28 (up 9.1% from $2.09 for the same quarter of the previous year)
- PE ratio of The Home Depot: 21.4
- Dividend declared: $1.50
- Dividend yield of The Home Depot: 2.56%
- Diluted shares in issue: 1.088 billion (down -2.9% from 1.121 billion for the same quarter of the previous year)
- Cash and cash equivalents: $2.133 billion
- Cash and equivalents per share: $1.96
- Cash and equivalents makes up 0.82% of The Home Depot's market capital
- Cash and equivalents makes up 4.16% of The Home Depot's total assets
- Merchandise inventories:: $14.531 billion
- Home Depot merchandise inventories increased by 4.4% over the last 12 months
- Inventories makes up 28.4% of Home Depot's total assets
- Receivables: $2.106 billion
- Receivables makes up 4.1% of The Home Depot's total assets
- Home Depot receivables increased by 8.8% over the last 12 months
- Cash generated from operations for full fiscal 2019; $13.723 billion
- Cash generated from operations per share; $12.61
- Cash generated from operations per share; $12.61
- Customer transactions (in millions): 369.6 (down 6.4% from the 394.8 million transactions for the same quarter of the previous year)
- Average ticket $68.29 up 4.1% from $65.59 for the same quarter of the previous year
- Sales per square foot: $425.70 up 2.8% from $414.17 for the same quarter of the previous year
The Home Depot management commentary on their 4th quarter 2019 earnings
ATLANTA, Feb. 25, 2020 /PRNewswire/ -- The Home Depot®, the world's largest home improvement retailer, today reported fourth quarter and fiscal 2019 results.
"Fiscal 2019 was a record year for our business and one marked by significant progress as we invest to transform ourselves into The Home Depot of the future. We had a strong finish to the year as our fourth quarter results reflect strength in our core business, solid execution around our holiday events and the overall health of the consumer," said Craig Menear, chairman, CEO and president.
"We are now two years into our multi-year investment program and have more conviction than ever that our strategic initiatives are creating a value proposition that is unique to the marketplace and will extend our leadership position for years to come. Through the second year of our One Home Depot investment program, we have grown sales by over $9 billion dollars – a level of growth unmatched in our market. I am proud of the way our associates continue to focus on our customers, and I want to thank them for their hard work and dedication in the fourth quarter and throughout the year."
Dividend Declaration
The Company today announced that its board of directors approved a 10 percent increase in its quarterly dividend to $1.50 per share, which equates to an annual dividend of $6.00 per share.
"As a testament to our commitment to create value for our shareholders and a demonstration of confidence in the business going forward, the board has increased the dividend for the eleventh consecutive year," said Richard McPhail, CFO and executive vice president. The dividend is payable on March 26, 2020, to shareholders of record on the close of business on March 12, 2020. This is the 132nd consecutive quarter the Company has paid a cash dividend.
"Fiscal 2019 was a record year for our business and one marked by significant progress as we invest to transform ourselves into The Home Depot of the future. We had a strong finish to the year as our fourth quarter results reflect strength in our core business, solid execution around our holiday events and the overall health of the consumer," said Craig Menear, chairman, CEO and president.
"We are now two years into our multi-year investment program and have more conviction than ever that our strategic initiatives are creating a value proposition that is unique to the marketplace and will extend our leadership position for years to come. Through the second year of our One Home Depot investment program, we have grown sales by over $9 billion dollars – a level of growth unmatched in our market. I am proud of the way our associates continue to focus on our customers, and I want to thank them for their hard work and dedication in the fourth quarter and throughout the year."
Dividend Declaration
The Company today announced that its board of directors approved a 10 percent increase in its quarterly dividend to $1.50 per share, which equates to an annual dividend of $6.00 per share.
"As a testament to our commitment to create value for our shareholders and a demonstration of confidence in the business going forward, the board has increased the dividend for the eleventh consecutive year," said Richard McPhail, CFO and executive vice president. The dividend is payable on March 26, 2020, to shareholders of record on the close of business on March 12, 2020. This is the 132nd consecutive quarter the Company has paid a cash dividend.
Fiscal 2020 Guidance
The Company provided the following guidance for fiscal 2020:
The Company provided the following guidance for fiscal 2020:
- Total sales growth of approximately 3.5 percent to 4.0 percent
- Comparable sales growth of approximately 3.5 percent to 4.0 percent
- Six new stores
- Operating margin of approximately 14.0 percent
- Net interest expense of approximately $1.2 billion
- Effective tax rate assumption of approximately 24.0 percent
- Share repurchases of at least $5.0 billion
- Diluted earnings-per-share growth of approximately 2.0 percent to $10.45
- Capital spending of approximately $2.8 billion
- Depreciation and amortization expense of approximately $2.4 billion
- Cash flow from operations of approximately $13.5 billion
The Home Depot stock price history
The image below, obtained from Google shows the stock price history of The Home Depot (NYSE:HD) for the last 5 years and it's been a pretty good time for Home Depot stockholders over the last 5 years. 5 years ago the stock was trading at $114.75 and its currently trading at $235.24. That's a very strong return of 105.1% provided to Home Depot stockholders over the last 5 years.
The stock of Home Depot is trading at a lot closer to its 52 week high of $247.36 than it is to its 52 week low of $179.52 which to us is a clear indication that the short term sentiment and momentum of The Home Depot stock is very positive at this point in time.
The stock of Home Depot is trading at a lot closer to its 52 week high of $247.36 than it is to its 52 week low of $179.52 which to us is a clear indication that the short term sentiment and momentum of The Home Depot stock is very positive at this point in time.
Recent coverage of The Home Depot
The extract below covers the latest regarding The Home Depot as obtained from TheStreet.com
Home Depot Inc. (HD) posted stronger-than-expected fourth quarter earnings Tuesday, and reiterated its full-year sales forecast, as same-store sales topped forecasts for the holiday period. Home Depot said earnings for the three months ending on February 3 were pegged at $2.28 per share, a modest 1.33% gain from last year but fully 18 cents ahead of the Street consensus forecast. Group sales, Home Depot said, slipped 2.6% to $25.8 billion, just ahead of analysts' forecasts of a $25.76 billion tally,, but the company noted that an extra week in the 2018 fiscal year added $1.7 billion to the comparable total.
Home Depot said same-store sales rose 5.2% from last year, well ahead of the consensus estimate of 4.7, and reiterated its full-year 2020 guidance that sees comparable sales rising between 3.5% and 4.%. Full year earnings, Home Depot said, are expected to rise 2% to $10.45 per share. "We had a strong finish to the year as our fourth quarter results reflect strength in our core business, solid execution around our holiday events and the overall health of the consumer," said CEO Craig Menear. "We are now two years into our multi-year investment program and have more conviction than ever that our strategic initiatives are creating a value proposition that is unique to the marketplace and will extend our leadership position for years to come."
Read the full article here
Home Depot Inc. (HD) posted stronger-than-expected fourth quarter earnings Tuesday, and reiterated its full-year sales forecast, as same-store sales topped forecasts for the holiday period. Home Depot said earnings for the three months ending on February 3 were pegged at $2.28 per share, a modest 1.33% gain from last year but fully 18 cents ahead of the Street consensus forecast. Group sales, Home Depot said, slipped 2.6% to $25.8 billion, just ahead of analysts' forecasts of a $25.76 billion tally,, but the company noted that an extra week in the 2018 fiscal year added $1.7 billion to the comparable total.
Home Depot said same-store sales rose 5.2% from last year, well ahead of the consensus estimate of 4.7, and reiterated its full-year 2020 guidance that sees comparable sales rising between 3.5% and 4.%. Full year earnings, Home Depot said, are expected to rise 2% to $10.45 per share. "We had a strong finish to the year as our fourth quarter results reflect strength in our core business, solid execution around our holiday events and the overall health of the consumer," said CEO Craig Menear. "We are now two years into our multi-year investment program and have more conviction than ever that our strategic initiatives are creating a value proposition that is unique to the marketplace and will extend our leadership position for years to come."
Read the full article here
The Home Depot (HD) latest stock valuation
So what is Home Depot stock worth based on their 4th quarter 2019 earnings report and their earnings guidance provided for their 2020 fiscal year? Based on their earnings report and the fiscal guidance provided our valuation model provides a target (full value) price for Home Depot at $211.70 a stock (up slightly from our 3rd quarter 2020 earnings report review of Home Depot).
We therefore believe the stock of The Home Depot is overvalued
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price, which in this case is $211.70, thus a good entry point into The Home Depot would be at $190.50 or below.
We expect the stock of Home Depot to pull back slightly from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is overvalued based on their latest earnings report and fiscal guidance provided.
We therefore believe the stock of The Home Depot is overvalued
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price, which in this case is $211.70, thus a good entry point into The Home Depot would be at $190.50 or below.
We expect the stock of Home Depot to pull back slightly from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is overvalued based on their latest earnings report and fiscal guidance provided.
Next earnings release for The Home Depot
It is expected that The Home Depot will release their 1st quarter 2020 earnings report towards the end of May 2020