Opinions
Hilary Kramer
Home Depot
HD-N
COMMENT
Oct 14, 2016
Stock price when the opinion was issued
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Covid saw overspending by consumers, then underspending, now normalizing. Rising interest rates have affected lower-income US households, and that's showing up in HD traffic numbers. In US, over 50% of homes are over 40 years old; long-term secular trend to repair and modernize.
Cheaper than it's been, probably still a good long-term buy. Dominant market position, and ultimately housing will come back. But housing's in a slowdown, US consumer will go through some difficulties from tariff risk and higher mortgage rates. He has nothing in retail/consumer right now.
They just reported revenues a little light and EPS also missed, basically was flat YOY, but the quarter was still good. The misses were partly based on poor weather last quarter (a wet spring). Same-stores sales over the quarter locked flat, but was +3.1% in July after two flat months. Management is confident in its distribution centres and reiterated its full-year forecast. If interest rates fall (looking likely), it will only help the housing and home improvement market. The tariff hit will be minimized because many HD products are made in the US.
Dividend growth strategy? She agrees with buying this if you want dividend growth. They continue to build and grow their top and bottom line. The 100-pound gorilla in their arena. You have to be very careful about the methodology of dividend growth. It is not necessarily about buying utilities, which seem very appealing. But they’ve been bid up by everybody looking for dividend yield. You are much better off buying oddball things like Texas Roadhouse (TXRH-Q). Be careful of telecommunication companies, because they will be squeezed. A good dividend yielding stock that is off the radar is Domtar (UFS-N). (See Top Picks.)