Home Depot's Credit Card Hacking: What Wall Street's Saying

NEW YORK (TheStreet) - Home Depot (HD) confirmed that it was the target of a credit card security breach that involved its U.S. and Canadian stores.

The Atlanta-based do-it-yourself retailer said in a regulatory filing that its "payment data systems have been breached, which could potentially affect customers using payment cards at its U.S. and Canadian stores. There is no evidence that the breach has affected stores in Mexico or customers who shopped online at HomeDepot.com." As of right now, there is no evidence that debit PIN numbers were compromised, the filing said.

The investigation, which began on September 2, is being focused on credit card activity beginning in April. "The company has taken aggressive steps to address the malware and protect customer data," the filing said. Home Depot is offering free identity protection services, including credit monitoring, to any customer who used a payment card at a store since April.

Home Depot had previously confirmed it will roll out a "Chip and PIN" to all U.S. stores by the end of this year, "well in advance of the October 2015 deadline established by the payments industry," the filing said.

Shares fell 1.3% to $89.60 on Tuesday. Here's what Wall Street analysts are saying about Home Depot.

Brian Nagel, Oppenheimer (Outperform; $101 PT)

Yesterday (9/8) after the close, Home Depot confirmed that the company's payment data system has been breached. Given persistent headlines over the past week, we do not expect HD's confirmation of a breach to prove news to investors. The extent of the damage to HD might not be known for some time. We continue to look upon any breach-related stock price weakness as a buying opportunity. Investors should look beyond a likely one-time charge, in our view. Consumers are turning hardened to the risks and annoyances of cyber hacking. HD enjoys a solid standing with shoppers and the benefits of a more captive consumer. HD is unlikely to quantify any potential sales disruption until the chain announces Q3 (Oct.) results in mid-Nov.

We don't think customers have reacted strongly thus far. While the company is not commenting on the trends in business since this news started to break last week, we don't get the impression customers are acting irrationally over this. Perhaps this reflects less shock value as consumers have seen this movie a few times already. While no less a nuisance, customers are not being held accountable for fraudulent charges and are receiving free identity protection services, including credit monitoring (for those that used a payment card at a Home Depot store in 2014, from April on).

David Schick, Stifel (Hold)

So far, this is following a similar path to Target (TGT) and in fact there is some blogosphere talk this is the same loophole theft. HD is "doing the right thing" in cooperating with officials and letting consumers know. We expect consumers are somewhat desensitized as this has happened before. But our early READ Survey work suggests that as of last week roughly 60% of consumers knew about the possible HD breach and 45% said any purported breach would affect their shopping at a given retailer. We will track the trend over time. Our store visits (admittedly limited) have shown robust healthy traffic at HD. So while we know the sales impact was severe for a short period of time at TGT we expect that HD would not even have as much. At this point we'd expect the 500 bp possibility (for a month following the breach, impacting 3Q14 by up to 200 bp, based upon TGT's experience) could be too aggressive and therefore perhaps 100 bp impact to 3Q14 sales is a better estimate.

TheStreet Ratings team rates HOME DEPOT INC as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:

"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 revenue growth, notable return on equity, good cash flow from operations, solid stock price performance and impressive record of earnings per share growth. 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:

  • HD's revenue growth has slightly outpaced the industry average of 0.3%. Since the same quarter one year prior, revenues slightly increased by 5.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • HOME DEPOT INC has improved earnings per share by 22.6% 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 ($4.50 versus $3.75).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Specialty Retail industry average. The net income increased by 14.2% when compared to the same quarter one year prior, going from $1,795.00 million to $2,050.00 million.
  • 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.

--Written by Laurie Kulikowski in New York.

Follow @LKulikowski

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

More from Stocks

Amazon, Procter & Gamble, Southwest and Netflix - 5 Things You Must Know

Amazon, Procter & Gamble, Southwest and Netflix - 5 Things You Must Know

Just How Bad Is Facebook's Diversity Problem?

Just How Bad Is Facebook's Diversity Problem?

2 More Reasons to Sell All Your Stocks and Run Away

2 More Reasons to Sell All Your Stocks and Run Away

Why Aren't Markets Thinking About the Risk of a Syrian Counterattack?

Why Aren't Markets Thinking About the Risk of a Syrian Counterattack?

How Chinese Trade and Security Tensions Could Impact U.S. Tech Companies

How Chinese Trade and Security Tensions Could Impact U.S. Tech Companies