This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Home Depot Remains the Retail Sector's Best Bargain Stock

NEW YORK (TheStreet) – Home Depot (HD - Get Report) has nothing left to prove.

The battle with Lowe's (LOW) for consumer's home-improvement dollars is now just a formality. Home Depot has won. From this point forward, the company only needs to maintain its leadership. The only question is what investors can gain from this victory.

Home Depot stock, at around $84, is up 1.6% on the year to date. If you're not impressed, you should be. That number is still good enough to beat the gains of 70% of the companies in the Dow Jones Industrial Average. Besides, over the past three years, Home Depot has rewarded investors with gains of more than 42%, helped by the strong rebound in the housing. And the next several years look even more promising.

READ MORE: Warren Buffett's Top 10 Dividend Stocks

These shares are cheap. Based on next year's earnings estimates of $5.12 per share, Home Depot is the best bargain in retail. This is fitting since its slogan is "More saving. More doing." With the stock trading at around $84, these shares can be worth $90 to $95 in the next 12 months. Next year's earnings prices Home Depot at a multiple of 16, which is six points below the industry average.

Management is working quickly to cut costs and centralize the company's distribution centers. These initiatives (among others) will help Home Depot offset any near-term headwinds caused by unforeseen events -- like the winter weather that impacted store traffic.

What's more, a recent report by research company MarketLine showed how Home Depot benefited from a rebounding home improvement market between 2009 and 2013. During that span, which includes an annual growth rate (compounded) of 6.8%, that sector posted revenue of $790 billion.

Over the next four years, MarketLine predicts the home improvement market will generate revenue of about $1.1 billion. This assumes a compound annual growth rate of 6.6%.

In 2013, Home Depot posted $78.8 billion in total revenue. Assuming MarketLine's total 2013 revenue is correct, this means Home Depot accounted for 10% of all home improvement retail sales.

Home Depot is growing revenue at an annual rate of 5%. The company is projected to grow full-year 2014 revenue to $82.55 billion and that number is projected to grow to $86.22 next year. But that's annual revenue growth of just 4.7% and 4.4%, respectively. This is while MarketLine is calling for annual home improvement sales of 6.6%.

READ MORE: 8 Stocks George Soros Is Buying in 2014

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
HD $112.37 0.00%
AAPL $124.24 0.00%
FB $83.01 0.00%
GOOG $555.17 0.00%
TSLA $190.41 0.00%


DOW 17,678.23 -40.31 -0.23%
S&P 500 2,056.15 -4.90 -0.24%
NASDAQ 4,863.3620 -13.1570 -0.27%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs