Home Depot Dividend Boost Pushes Stock to All-Time Highs

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Home Depot Inc. (NYSE: HD) reported fourth-quarter and full-year 2014 results before markets opened Tuesday. The home improvement retailer posted diluted earnings per share (EPS) of $1.05 and $19.16 billion in revenues. In the same period a year ago, the home improvement store reported EPS of $0.73 on revenue of $17.7 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $0.89 and $18.7 billion in revenue.

For the full year, Home Depot reported diluted EPS of $4.71 on revenues of $83.2 billion, compared with 2013 EPS of $3.76 and revenues of $78.81 billion. Analysts were looking for EPS of $4.49 and revenues of $82.7 billion. Full-year earnings include a gain of $0.15 per share related to the sale of the company’s equity ownership in HD Supply Holdings Inc. (NASDAQ: HDS) and a charge of $0.02 per share related to the data breach that hit the store last year.

Fourth-quarter same-store sales at all Home Depot locations rose 7.9% year over year and 8.9% in the United States.

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Home Depot raised its dividend by 25.5% from a quarterly rate of $0.47 to a new rate of $0.59 per share. The company also authorized a new $18 billion share repurchase program that it expects to use by the end of fiscal 2017.

The company guided 2015 sales growth of approximately 3.5% to 4.7% and same-store sales growth in the range of 3.3% to 4.5%. Diluted EPS is forecast to grow by 8.5% to 10.5% (to a range of $5.11 to $5.17), including the effect of a $4.5 billion stock buyback. Consensus estimates call for 2015 EPS of $5.23 on revenues of $86.46 billion.

Analysts have a full-year EPS estimate that is $0.06 per share higher than the top of the company’s own estimated range. It is a little difficult to tell whether the EPS guidance Home Depot offered is an attempt to manage expectations or if it really reflects the state of the company’s business going forward. Home Depot’s revenue forecast tops out at 4.7% above 2014 revenues, but 2014 revenues were 5.6% higher than 2013’s.

Investors appear to believe that Home Depot is under-promising and planning to over-deliver in 2015. Shares traded up about 3.3% in Tuesday’s premarket, at $116.00, well above the 52-week range of $74.61 to $113.16. The 52-week high was posted on Monday. Thomson Reuters had a consensus analyst price target of around $111.50 before the results were announced.

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