Friday’s rating is based on Home Depot’s relative underperformance offering a strong buying opportunity to investors.
Merrill Lynch’s Denise Chai said:
Given concerns over the speed of the housing recovery, Home Depot has significantly underperformed the market in the last 6M, rising 1.6% vs 9% for the S&P 500. As a result, HD is now trading at a slight discount to its 5-year average, and its premium to the S&P 500 has narrowed considerably. We believe recent underperformance offers an attractive opportunity in the stock.
Chai believes that Home Depot will continue to leverage a powerful combination of industry tailwinds from a housing recovery and strong renovation cycle. The following were five key reasons to buy Home Depot:
- Multiple industry tailwinds, many in early stages
- Internal initiatives that are driving comp growth and share gains
- Powerful earnings leverage on continued productivity improvements
- Strong returns with room for upside from additional leverage
- Compelling valuation
What investors need to consider is that this $100 price target is the top price target in the Home Depot analyst coverage universe. It is also more than $10 above the consensus $89.60 price target listed by Thomson Reuters.
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