Home Depot (NYSE:HD) A Pandemic Winner That Keeps On Winning

Jaw-Dropping Results From America’s Retailers

 Home Depot (NYSE:HD) reported earnings this morning and gave the market everything it wanted and more. Not only did the company post robust growth but growth soundly beat the analyst’s estimates and accelerated from the previous quarter. The company says the strength was driven by the acceleration of DIY home-improvement projects sparked by the pandemic. Looking forward and taking the July housing data into account (starts and permits both up 20%) I think it foolish to believe that trend will end anytime soon.

There Is Nothing Not To Like About Home Depot’s 2Q Earnings

What makes Home Depot’s results so spectacular is that the analysts had been steadily upping their targets for revenue all quarter. The actual results, more than double the consensus, grew 23.4% from the previous year and 33% from the prior quarter. Results were driven by an increase in traffic, ticket counts jumped 12.4%, coupled with an increase in ticket average, up 10.1%, that show no signs of letting up. I myself live within eye-sight of our local Home Depot and I can say definitively that store is always packed.

The bottom-line results were equally strong. Margins held steady over the quarter delivering GAAP EPS of $4.02 or $0.34 better than expected which, in terms of valuation, helps bring Home Depot down from the 27X forward earnings range down to a more reasonable 25X assuming the second half of the year is equally strong. Right now, the consensus target for the year is EPS just over $10.60 per share. The YTD results alone are worth 60% of that figure, add in the 3rd quarter consensus (not adjusted for the 2Q strength) and the company will meet its full-year target next quarter.

And that is all on top of record-levels of bonuses, benefits, and profit-sharing for Home Depot employees.

“In the second quarter, the Company invested approximately $480 million in additional benefits for associates, including weekly bonuses for hourly associates in stores and distribution centers. Year-to-date, the Company has spent approximately $1.3 billion on enhanced pay and benefits in response to COVID-19. Additionally, the Company's first half performance resulted in a record payout for Success Sharing, the Company's profit-sharing program for hourly associates.”

What this all means for us today is the analysts are going to have to start upping their targets and soon. Oddly, the analyst aren’t as bullish on Home Depot as they should have been which means the upgrades could be quite substantial. The current consensus rating is a Buy but with fully half the analysts still sitting on the fence. That's a lot of potential fuel to drive this market higher.

There Is A Bigger Story At Play With Home Depot

 One of the most telling metrics reported by Home Depot is its inventory, down 8.0% over the quarter. Simply speaking from a single-company perspective, that data points to solid business across the supply chain. Now, add in strong results from Walmart (NYSE:WMT) and the strong housing data and the U.S. economy looks set up for a fairly strong manufacturing rebound in the 3rd quarter. Don’t be surprised with ISM and manufacturing data comes in above expectations later this month. Oh, yeah, and you should also expect strong results from Lowes later this week.

 Home Depot Is A Dividend-Growth Stock You Need To Own

Home Depot has long been a favorite of mine because of its dividend-growth story. The company has been increasing the distribution for 11 years and is well on track for a sizeable increase later this year. The company tends to pay out more than half of its earnings and, with the 2Q results in the bag, that ratio is falling below the 50% mark. Looking back at the dividend history, the 5-year CAGR is above 25% which suggests the upcoming increase, due out in the calendar 4th quarter reporting cycle. The yield at today’s prices is about 2.0%; if we get the increase I am expecting the yield on today’s price will jump to 2.6%

The Technical Outlook: Home Depot Is About To Go Ballistic

The chart of Home Depot was bullish before the report and now, after it, it looks like price action is about to go ballistic. The 2Q report has shares up about 1.0% in the premarket action, trading at a new high, forming the second gap in as many days, and all is supported by the indicators. Both MACD and stochastic are showing bullish signals that could keep this stock trending higher in the near to the short-term. As with any stock, there is a risk of a pull-back or sell-off but I would welcome one if it came as the buying opportunity it is.