The home improvement arena faces several hurdles. Among them are potential increases in the prices of key materials, particularly lumber from Canada. Another is a growing uncertainty about the overall economy. However, one of the biggest names in stock-picking likes Home Depot Inc. (NYSE: HD | HD Price Prediction), the largest home improvement company in America.
Jim Cramer thinks pessimism about Home Depot misses the point of why the company will continue to be successful. He also thinks its shares are cheap at current levels. He commented on CNBC, “You may be skeptical, thinking that higher interest rates, tariffs are…more important than the specifics of this home improvement chain. I disagree. To me, this is when you keep the faith.” He added that investors should buy more if the stock drops.
In a Good Place
Home Depot has underperformed the market this year. Its stock is down almost 9%, while the S&P 500 is off 4% for the same period. The drop is about the same as its primary competitor, which is Lowe’s Companies Inc. (NYSE: LOW).
Home Depot’s most recent quarter was a strong one. Revenue rose 14% year over year to $39.7 billion, and per-share earnings were up 7% to $3.02. The company raised its quarterly dividend 2.2% to $2.30. That puts its yield at 2.6%. “Our fourth quarter results exceeded our expectations as we saw greater engagement in home improvement spend, despite ongoing pressure on large remodeling projects,” Ted Decker, board chair, president, and CEO, commented.
Guidance was also strong. Sales growth for the upcoming fiscal year is expected to be up 2.8%. This even though the year will have 52 weeks compared to 53 weeks last year. Earnings are expected to slip 3%.
There is reason to be optimistic about Home Depot’s near-term future. The National Association of Retailers said January pending home sales dropped 4.6% to an all-time low. High mortgage rates of nearly 7% have also slowed national home sales.
People may have increased the rates at which they upgrade their homes. Rival Lowe’s recently signaled that home improvement activity had picked up. While Home Depot faces macroeconomic headwinds, people still want to keep their homes in good order.
Renowned stockpicker Jim Cramer likes Home Depot Inc. (NYSE: HD) stock now. He feels that pessimism about the home improvement colossus misses the point.
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