After years of reeling under the housing downturn, North
America's largest home improvement retailers Home Depot (
) are hoping that this year's spring will finally bring a long
awaited bloom in retail sales of home goods and furnishings. And
with the U.S. housing market finally getting back on track in
recent months and an improvement in general employment levels,
investors have plenty of reason to share the excitement.
Our complete analysis for Home Depot's stock
Spring marks the peak selling season for home improvement
retailers with home construction and rebuilding activity picking up
after a long, hard winter. And speaking of long, hard winters,
that's exactly what Home Depot and Lowe's seem to have been stuck
in for the last five years or so. The housing bust of 2009 took a
heavy toll on the two retailers' top lines as the triple whammy of
rampant foreclosures, declining consumer spending and an all-time
low demand for new housing drove revenues southwards.
But the thaw finally set in over the course of the last two
years as key housing indicators signaled a definite
recovery in demand for homes in the US. New home sales crawled
their way up to 367K for 2012, the highest since 2009. Permits for
new constructions stood at 624K for 2011, the highest since 2008.
Home vacancy rates for both rental and home-owned properties also
declined in 2011 compared to the 2009-10 period. Meanwhile,
construction spending rose 0.9 percent in 2012 to a $885
billion, the highest levels seen since August 2009. (("
Construction Spending Rises More Than Forecast on
", Bloomberg, February 2013)) The growth in demand for new housing
has been complemented well by lower foreclosure rates. In December
2012, there were around 56,000 completed foreclosures in the
U.S. compared to 71,000 in December 2011.
What all this means for Home Depot and Lowe's is simply more
customers. The improvement in general employment levels in the U.S.
over 2012 also means these customers have more purchasing power
than the lean period of 2009-10. Adding all this up, we estimate
that demand for home improvement products in key segments should
rise at an annual rate between 2% and 3% over the next few years,
driving the two companies' top-line numbers.
And the companies themselves seem to have a lot of confidence in
the general environment these days. Home Depot, for instance, has
decided to hire as many as 80,000 additional seasonal workers to
handle the incoming spring traffic in their stores. That's up from
70,000 last year. And that's why the company's investors definitely
have reason to look forward to a hotter 2013.
We have a Trefis price estimate of $59 for Home Depot's
stock, which we will revise once the company's 2012 full year
earnings are out.
a Company's Products Impact its Stock Price at Trefis