Bank of America Merrill Lynch is defending Home Depot Inc. (NYSE: HD). What stands out here is not just that the firm is reiterating its Buy rating, but that it is calling for Home Depot shares to go to $100.00, implying some 25% upside, plus the company’s 2.4% dividend yield.
Friday’s rating is based on Home Depot’s relative underperformance offering a strong buying opportunity to investors.
Merrill Lynch’s Denise Chai said:
Given concerns over the speed of the housing recovery, Home Depot has significantly underperformed the market in the last 6M, rising 1.6% vs 9% for the S&P 500. As a result, HD is now trading at a slight discount to its 5-year average, and its premium to the S&P 500 has narrowed considerably. We believe recent underperformance offers an attractive opportunity in the stock.
Chai believes that Home Depot will continue to leverage a powerful combination of industry tailwinds from a housing recovery and strong renovation cycle. The following were five key reasons to buy Home Depot:
- Multiple industry tailwinds, many in early stages
- Internal initiatives that are driving comp growth and share gains
- Powerful earnings leverage on continued productivity improvements
- Strong returns with room for upside from additional leverage
- Compelling valuation
What investors need to consider is that this $100 price target is the top price target in the Home Depot analyst coverage universe. It is also more than $10 above the consensus $89.60 price target listed by Thomson Reuters.