Lower gasoline prices, an improving labor market and positive consumer sentiment are enough to drive momentum in the retail space. Thus, it would be feasible on your part to add a few retail stocks to your portfolio that have solid fundamentals and could provide a sound investment opportunity. Here we have highlighted one such stock – The Home Depot, Inc. HD, a home improvement retailer – that looks promising and carries a Zacks Rank #2 (Buy), with a long-term earnings growth rate of 14.2%. We have analyzed a few basic aspects of the stock that has surged roughly 31% year to date.
Positive Earnings Surprise History
The stock appears compelling from the earnings perspective. Home Depot 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 3.6%, including a positive surprise of 2.3% delivered in the third quarter of fiscal 2015.
Home Depot reported better-than-expected results, benefitting from growth witnessed across all geographies and product categories on the back of improved transactions from both Do-It-Yourself and Pro customers.
The company posted third-quarter adjusted earnings of $1.36 per share, which increased 18.3% year over year and beat the Zacks Consensus Estimate of $1.32. Management now envisions fiscal 2015 earnings per share to grow 14% to $5.36 per share.
Following the company’s upbeat performance and encouraging outlook, the Zacks Consensus Estimate has been portraying an uptrend, climbing 7 cents and 4 cents to $5.36 for fiscal 2015 and $6.15 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 Lowe's Companies, Inc. LOW, Foot Locker, Inc. FL and Express Inc. EXPR, all carrying a Zacks Rank #2.
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