COMPANY DESCRIPTION

The Home Depot is a home improvement retailer. Co.'s stores sell a range of building materials, home improvement products and lawn and garden products and provide a number of services. As of Feb 2 2014, Co. had 2,263 The Home Depot stores located in the U.S. including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam, Canada and Mexico. Co. serves three primary customer groups: Do-It-Yourself customers, Do-It-For-Me customers, and professional customers. Co.'s products include LED light bulbs from Cree®; Soft Spring Carpet from Mohawk®; wifi-enabled thermostats from Nest® and Honeywell®; and Double Duty Sawzall Blades from Milwaukee®.

 

ECONOMIC MOAT

Home Depot’s moat is dug by its size, scale and scope.   HD’s scale generates significant bargaining power with vendors when it comes to products, advertisement, and rent, among other things.  HD has creates a unique culture and reputation over the years.  Customers believe in the reliability of the brand. Lowe's is the only other company that comes close, and Tractor Supply is beginning to close the gap in certain categories

 

OUTLOOK

HD is operating with some momentum.  Strength is broad-based across geographies and merchandise categories. The momentum ought to continue through fiscal 2015, driven by moderate GDP growth and a positive trend from the housing and remodeling markets. However, management noted that the strong U.S. dollar will likely weigh on sales and earnings. Approximately $4.5 billion in stock repurchases should aid per-share comparisons, with earnings likely to come in between $5.11 and $5.17 a share. Costs related to last year's data breach are possible and could weigh on the bottom line. The stock enjoys a premium valuation, we believe the stock is still attractive, especially for conservative investors seeking a moderate level of current income.

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STRENGTHS

  • Being the largest home improvement retailer in the world, Home Depot has significant bargaining power

  • Proprietary brands offer exclusivity and increase customer footfall

  • Focus on offering eco-friendly products 

WEAKNESSES

  • Excessive dependence on the US

  • Involvement in legal proceedings 

THREATS

  • Increased regulations on private label credit cards may impact the appeal of cards adversely

  • Increasing labor wages 

OPPORTUNITIES

  • Home improvement market provides opportunity to increase sales

  • Rising immigrant population
    Increasing preference to shop online

  • Growth in the US homebuilding industry 

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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