Brokerage firm Oppenheimer came away from recent meetings with Home Depot Inc. (NYSE: HD) senior executives even more confident in its near and longer term positive stance on shares. For a long while, Oppenheimer has recommended Home Depot as one of its Select Top Picks within Hardlines Retail.
Management indicated clearly that they continue to look upon an improving housing market as a sales tailwind for Home Depot. Limited supplies are helping to drive home price appreciation. Still strict lending standards are keeping first-time home buyers and others on the sidelines.
Online sales are currently tracking at about 5% of total revenues. The Buy Online/Pick Up in Store option accounts for nearly half of online sales. Management tends to look on online sales as incremental to the chain.
By most all measures, pro penetration remains subdued at Home Depot. The company is experimenting aggressively with merchandising and service initiatives to drive better pro sales. Commentary suggests that Home Depot increasingly looks on more comprehensive financing alternatives as a means to drive better pro sales.
The recent acquisition of Interline Brands reestablishes Home Depot in the maintenance and repair business and affords the chain an opportunity to better capitalize on improving sales of multifamily residences. Integration of the distributor is likely to prove slow and steady.
The company reiterated its focus on capital redistribution. Home Depot plans to buy back about $7 billion in stock in 2015 and targets an approximate 50% dividend payout ratio.
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To summarize, the key takeaways from the meeting were:
- Macro environment remains very accommodative.
- Buy Online/Pick Up in Store is catching on with consumers.
- Home Depot focused on better serving pro customers.
- Chain positioned to deal with wage pressures.
- Management remains committed to aggressive cash redistribution.
So far in 2015, the stock has outperformed the market, with shares up over 12% year to date. At the same time, shares are up over 32% in the past 52 weeks.
Shares of Home Depot were relatively flat at $116.16 Wednesday morning. The stock has a consensus analyst price target of $131.61 and a 52-week trading range of $86.35 to $123.80.
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