Home Depot (HD) just reported its 1st quarter 2013 earnings that you can find here. For this article I have highlighted the results as well as provided a comparative analysis of the company's current valuation.
Profile and Performance
Home Depot has a market cap of $113.77 billion and currently trades for $76.76 per share. Shares are up 24.79% YTD and trade 69.05% above their 52-week low of $45.41.
1st Quarter Results
- EPS of $0.83, up 23% from the prior year's first quarter earnings of $0.67. Analysts were expecting, on average, $0.77 per share.
- Revenue came in at $19.1 billion (includes $574 from seasonal timing change), 2.19% above the average estimated $18.69 billion. This is also 7.24% above the previous 1st quarter's revenues of $17.81 billion.
- Same store sales increased 4.8%.
- Average ticket was up 5% to $57.24.
- Repurchased net $2.132 billion worth of shares.
- Updated 2013 fiscal guidance. Now expects sales to be up approximately 4% this year and expects diluted EPS to be up 17% to $3.52.
Before we begin, this Home Depot's valuation is somewhat mixed. On one hand, when compared to Lowe's (LOW), we see Home Depot trading with a higher P/B of 6.4 to Lowe's 3.42, and also with a PEG ratio of 1.46, 19% higher than Lowe's respective 1.18. And, all of this appears to be fair when we consider that Home Depot has an ROE and ROIC almost 2x's that of Lowes (25.42 to 12.89 and 14.45 to 7.12 respectively).
Then, at the same time, both companies are currently trading with a current yield of only 3.9% and with similar forward P/E's (Home Depot's 21.68 to Lowe's 20.37). I called this mixed earlier because the valuations based on book values/profitability margins appear to be valid while the price/earnings ratios would indicate Home Depot may deserve some more, even while trading at a 10 year high P/E of 25.6.
Putting this together, I am more inclined to say that while Home Depot's current valuation is historically high, it appears to be fair and Lowe's may be a the one that has gotten a little ahead of itself.
Checking analysts price targets, this too appears to be the consensus as analyst have a price target for Home Depot of 77.41 (slightly above the current price of $76.76), while Lowe's is trading above its price target of $42.00 (current price is $42.38).
Home Depot is turning in some solid results and the market has rewarded its shareholders handsomely. The earnings report beat estimates and while the share price appears to be pretty full, I wouldn't start to bet against the company any time soon. Anyone looking to enter may want to wait for a pullback but, either way, the company is backing up its near full valuation.
In addition to the links above, ratios and financial data was sourced from Morningstar.com, which you can find here.