Markets have been on a roller coaster ride in the recent past, whether we blame the flagging Chinese economy, the Eurozone debt crisis or the U.S. Federal Reserve's pending decision over the first rate hike that has been put to rest (at least for now). Hence, investors are always on their heels, gauging the market mood to pick the right stock for their portfolio. Here we have highlighted one stock that has been resilient to the current market volatility and whose share price has increased roughly 19% year to date - The Home Depot, Inc.HD .
The disappointing jobs' data for the month of September has put a big question mark over the health of the U.S. economy, which according to industry experts is projected to improve marginally over 1% in the third quarter. It is quite apparent that the market has witnessed a slew of events and it is a difficult task to fetch higher returns in such an investment climate. Moreover, Alcoa Inc.'s AA weak earnings report after the closing bell last Thursday put an unflattering spotlight on the Q3 earnings season.
Nevertheless, Home Depot has the potential to outperform even when market conditions are not congenial. The housing sector seems relatively unscathed by the China-led global growth worries. We have analyzed a few basic aspects of the stock that make it a favorite pick for investors:
Positive Earnings Surprise History
This Zacks Rank #2 (Buy) stock appears compelling from the earnings perspective. The home improvement retailer registered positive earnings surprises in seven consecutive quarters. In the trailing seven quarters, the Atlanta, GA-based company outperformed the Zacks Consensus Estimate by an average of 3.9%, including a positive surprise of 0.6% delivered in the second quarter of fiscal 2015.
Home Depot reported better-than-expected results, benefitting from strength in the core activities of its stores and persistent recovery in the U.S. housing market. The company posted second-quarter adjusted earnings of $1.71 per share, which increased 12.5% year over year and beat the Zacks Consensus Estimate by a penny. Management now envisions earnings in the band of $5.31-$5.36 per share for fiscal 2015, reflecting a 13%-14% year-over-year rise.
Following the company's upbeat performance and encouraging outlook, the Zacks Consensus Estimate has been portraying an uptrend, climbing 4 cents and 13 cents to $5.29 for fiscal 2015 and $6.11 for fiscal 2016, respectively, over the past 60 days. Clearly, a positive sentiment is palpable among analysts covering the stock.
Sturdy Growth Score
Who doesn't want a portfolio that generates higher returns? However, it might be difficult for one to look at each parameter and compare with the peer group for an analysis on whether the stock is attractive from the growth perspective. To make the task easy, Zacks has designed the new Style Score System .
The attractiveness of Home Depot as an investment option is also confirmed by its Growth Style Score of 'B'. The Growth Style Score combines conventional growth metrics with a thorough analysis of the company's income statement, balance sheet and statements of cash flows to evaluate its financial health and the sustainability of its growth trajectory. Back-tested results show that stocks with a Growth Style Score of 'A' or 'B', when combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
Solid Fundamentals Underscore Potential
Home Depot is a leading player in the highly fragmented home improvement industry. The company has been implementing several initiatives to drive long-term growth. Apart from widening the range of its premium products and opening new stores, the company is striving to expand its online capabilities. Home Depot has always maintained a disciplined capital allocation strategy focused on making investments to develop its business while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks.
Other Stocks to Consider
Investors may also consider other well-ranked stocks such as D.R. Horton, Inc. DHI sporting a Zacks Rank #1 and Lennar Corporation LEN , carrying a Zacks Rank #2.
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HOME DEPOT (HD): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
