Home Depot Inc. Stock Buy Recommendation Reiterated (HD)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK ( TheStreet) -- Home Depot (NYSE: HD) has been reiterated by TheStreet Ratings as a buy with a ratings score of A+. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, revenue growth, notable return on equity, good cash flow from operations and compelling growth in net income. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

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Highlights from the ratings report include:
  • HOME DEPOT INC has improved earnings per share by 22.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, HOME DEPOT INC increased its bottom line by earning $3.00 versus $2.46 in the prior year. This year, the market expects an improvement in earnings ($3.62 versus $3.00).
  • HD's revenue growth trails the industry average of 17.4%. Since the same quarter one year prior, revenues slightly increased by 7.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. When compared to other companies in the Specialty Retail industry and the overall market, HOME DEPOT INC's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has slightly increased to $2,697.00 million or 8.31% when compared to the same quarter last year. In addition, HOME DEPOT INC has also modestly surpassed the industry average cash flow growth rate of 2.74%.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 52.68% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

The Home Depot, Inc. operates as a home improvement retailer. Home Depot has a market cap of $115.0 billion and is part of the services sector and retail industry. The company has a P/E ratio of 25.00, above the S&P 500 P/E ratio of 18.00. Shares are up 25.7% year to date as of the close of trading on Monday.

You can view the full Home Depot Ratings Report or get investment ideas from our investment research center.

--Written by a member of TheStreet Ratings Staff.

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