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Key data points suggest that the US housing market has rallied
in recent weeks, a welcome sign for investors, borrowers who owe
more than their home is worth and the eternally optimistic
Lawrence Yun, chief economist for the National Association of
Realtors (NAR).
Not only did sales of existing homes increase 10 percent from
year-ago levels in July, but the NAR's seasonally adjusted index
of pending home sales also climbed 12.4 percent over the same
period, suggesting that this strength should continue into
August.
Meanwhile, the S&P/Case-Shiller US National Home Price Index
posted its first year-over-year gain in almost 24 months, inching
up 1.2 percent in the second quarter. Single-family home prices
last increased in the second quarter of 2010, when the impending
expiration of an $8,000 tax credit for first-time homebuyers gave
the residential housing market a temporary boost.
The housing market is now showing glimmers of recovery,
positioning Home Depot (
HD
) for greater growth ahead.
This Atlanta-based chain focuses on both do-it-yourself (DIY)
and professional customers. Both categories got clobbered during
the 2008-2009 recession, as consumers cut back on spending and the
housing market fell into a severe slump.
Home Depot survived the downturn by shedding unprofitable lines
and enhancing customer service. As a result, revenue and earnings
have grown during each of the past several quarters on a
year-over-year basis.
On August 14, Home Depot announced second-quarter 2012 results
that beat consensus expectations. The company reported $1.01 in
earnings per share (
EPS
), compared to the estimate of $0.98 in EPS, and revenue of $20.5
billion, compared to the estimate of $17.8 billion. EPS rose 17.4
percent, while revenue climbed 1.7 percent, compared to the same
period last year.
For the second quarter, the company reported earnings of $1.5
billion, an increase of 12.4 percent from the year-ago quarter.
Last quarter marked the third in a row of rising earnings.
During the past three years, Home Depot's comparable store sales
have consistently beaten those of its chief competitor, Lowe's (
LOW
), a clear indication that Home Depot is grabbing market share.
The company confirmed that it expects fiscal 2012 revenue will be
up about 4.6 percent from 2011.
Responding to complaints of indifferent service, Home Depot has
made an all-out effort to improve the customer's experience on the
store floor. It has beefed up training of floor supervisors and
equipped them with electronic hand-held inventory devices.
In June, the company's management revealed plans to dish out 50
percent of earnings as
dividends
. With a stock that now yields about 2.2 percent, Home Depot has
plenty of cash on hand to continue raising dividends in future
quarters.
Since 2003, annual dividends on average have represented less
than half of annual free cash flow, reflecting ample leeway for
future dividend boosts. The company also reaffirmed its commitment
to an aggressive stock buy-back program, with the repurchase of
$1.4 billion in additional shares slated for the remainder of the
year. Home Depot represents a compelling growth story in the
current choppy recovery. For more on Home Depot, and to get two
more growth picks, see
this free report
.