Home Depot gets bullish Barron's treatment

An uptick in the housing market, market-share gains at the expense of struggling Sears, and substantial supply-chain improvements could be the catalysts for a near-25% rise in Home Depot (HD) over the next year, writes Avi Salzman in a Barron's cover story.

The stock price is up just 6% Y/Y, sharply lagging both the S&P 500 and Lowe's (LOW). Its 17.4x P/E ratio slightly trails that of Lowe's despite more impressive earnings. As Lowe's has relied on promotions and new stores in the years following the housing bust, Home Depot - under the leadership of Frank Blake who came to the CEO spot just ahead of crash - has moved to cut costs, close underperforming units, and improve customer service, and since mid-2009 has consistently posted same-store sales gains higher than Lowe's. In 2013, comp-store sales grew 6.8% at HD, the best print since 1999.

Home Depot has the best management team in the business, says Credit Suisse's Gary Balter, and ROE has shot up to 35.5% - roughly twice that of competitors - from 22.2% when Blake took over and began reorganizing the supply chain.

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Comments (6)
  • Dr Joseph Haluska
    , contributor
    Comments (499) | Send Message
    this looks like a great opportunity to me.
    currently at a 5 point pullback, and a good spot to buy, or use options.
    I'll consider writing puts. The 72, 74, and 76's depending on your outlook and risk tolerance, duration also depending. I hope to see comments by you guys who are better at this than I am!
    19 Apr 2014, 04:01 PM Reply Like
  • dancing diva
    , contributor
    Comments (2747) | Send Message
    Implied vol is very low; you won't get much for selling downside puts. HD reports May 20th, after the monthly expires. Better to buy a very small stock position now and wait, and if HD doesn't rally further (after the probable Barron's pop), you can buy the weekly calls that expires May 23 or 30 on weakness closer to earnings. Earnings expectations are high, but I don't know whether they are too high.
    19 Apr 2014, 07:19 PM Reply Like
  • Snoopy1
    , contributor
    Comments (1125) | Send Message
    Selling puts is OK to collect premium, but premiums are low.


    However, if you're bullish and think HD ($77) will get to mid-$80s by year end, best to buy a risk-reversal Jan 2015 77.50/85 call spread and short a 70 put for a net $0.10 credit.


    11% capped return on your risk capital ($70) with 9% stock downside protection and the stock low in the past year is $72.21.


    If HD later dips below $73.50 assuming no change in fundamentals, you then adjust and roll the 77.50 calls down to a 72.50 strike to boost profit potential.
    19 Apr 2014, 09:18 PM Reply Like
  • william12
    , contributor
    Comments (46) | Send Message
    HD is down, not up. Once again SA contributers on the ball
    19 Apr 2014, 06:20 PM Reply Like
  • Dr Joseph Haluska
    , contributor
    Comments (499) | Send Message
    A year ago, HD was roughly 72. Now at 77, it is UP roughly 6.4% Y/Y YEAR OVER YEAR.
    The more I read this "breaking news" piece, and I have read it over and over, the more I have to compliment the SA "contributor" who put this together. It is news like this, presented with perspective and coupled with the right strategy, that helps us make profits, and is the reason the WSJ said that "Seeking Alpha predicted stock returns".
    SA, my compliments!
    19 Apr 2014, 09:46 PM Reply Like
  • Ziggy888
    , contributor
    Comments (466) | Send Message
    I have been a long-time holder and buyer of HD for close to 20 years. I have been buying and holding HD when the "experts" said to sell. Good thing I have learned to ignore all these "expert" advise.
    21 Apr 2014, 09:17 AM Reply Like
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