Pioneer Investments (Trades, Portfolio) is a global investment management firm with presence in 28 countries worldwide. Last quarter, Pioneer Investment increased its position in Home Depot (HD) by buying 226,867 shares of the company. As of March 31, the firm was holding 2,704,322 shares of the company. The following chart shows its holding history in Home Depot.
Home Depot's stock price has seen a good run over the past year. The company's stock has gained over 40%, significantly outperforming the S&P 500. Barron’s Avi Salzman believes that the company will continue its outperformance, as there are several multiyear sales drivers like continued recovery in housing market, rising renovation demand, and the company’s focus on the lucrative professional and high-end markets.
Most of the sell side analysts are also bullish on the company. Out of 30 analysts covering the stock, 18 are positive and have buy ratings while 12 have hold ratings. None of the analysts covering the stock has a sell rating. The company has seen a lot of positive commentary from analysts over the last couple of months. Barclays and RBC Capital assigned a Buy rating to Home Depot in January. The company received another Buy rating in February from RBC Capital analyst Scot Ciccarelli. Citi and Jefferies analysts also raised their price target on the company in February. According to Citi analyst Kate McShane, buyback flexibility should provide support to the company's EPS target.
Jefferies' Daniel Binder, who has a price target of $135 a share, recently reiterated his Buy rating on the company. In a research note post Q1 results, he wrote:
“Fundamentals are strong at HD and it remains a “consensus long,” but we still like it to play the reversion to the mean trade on home improvement spend and remodeling. Share repurchase could have upside as HD guidance seems low based on its 2x adj. debt to ebitdar target. Q2 is off to a good start, but is still expected to be the lowest comping quarter in FY16. This reflects the way weather broke last year and the sales comparison."
Home Depot continues to see broad based growth across all its geographies. Last quarter, the company's three U.S divisions exceeded their sales plan and all 19 regions saw mid-single digit comp growth or better. Its online business also posted strong performance with over $1 billion in sales.
Internationally, both of the company's Mexican and Canadian businesses posted positive comps in local currency for the quarter, making it 46 and 14 quarters in a row for positive comps, respectively. Overall, the company continues to post good top and bottom line results.
Going forward, continued tailwind from housing recovery and GDP growth will help the company in 2015. In addition, the company is also planning to open six new stores and expand the operating margins by 60 basis points. Earlier this year, the company's board also announced a 26% increase in its quarterly dividend of $0.59 per share and authorized a new share repurchase program of $18 billion.
Home Depot is trading at 21 times FY2015 EPS. According to sell side estimates, the company’s EPS is expected to grow 14.19% in the current fiscal year and 14.53% next fiscal year. The company has a dividend yield of 1.70%. The company is expected to maintain its high EPS growth over the next few years as housing recovery continues to take hold. Given its high EPS growth rate, I believe the stock will continue to outperform S&P 500 over the next couple of years.
