Cramer points out the harsh winter weather significantly distorted the beginning of this quarter but as it progressed, Home Depot indicated that May was quite strong. He calls the current quarter a "fulcrum quarter" for the largest U.S. home improvement retailer and says it is important because Spring "is basically Christmas for Home Depot" because "this is when the building and the gardening is occurring."
Cramer adds he liked the tone of Home Depot's conference call and thinks the company is doing a lot of things right. He also likes CEO Frank Blake's thesis that housing is still strong and encourages investors not to give up on Home Depot or the housing sector.
"We rate HOME DEPOT INC (HD) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- HOME DEPOT INC has improved earnings per share by 7.3% 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 $3.75 versus $3.00 in the prior year. This year, the market expects an improvement in earnings ($4.43 versus $3.75).
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, HOME DEPOT INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has slightly increased to $1,647.00 million or 3.51% 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 -4.54%.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 4.6%. Since the same quarter one year prior, revenues slightly dropped by 3.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The gross profit margin for HOME DEPOT INC is currently lower than what is desirable, coming in at 34.99%. Regardless of HD's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 5.72% trails the industry average.
- You can view the full analysis from the report here: HD Ratings Report