Why Analysts Keep Chasing Home Depot Targets Higher and Higher

Shares of Home Depot Inc. (NYSE: HD) were up 1.4% at $168.06 after beating earnings expectations. The initial take, based on the trading reaction, was that good might not be good enough. The take from the day-after confirms the initial take as shares were down more than 1% the following day.

Comparable sales increased more than expected with a 7.9% gain, while Home Depot’s online sales rose 19% in the third quarter. Investors should pay attention that Home Depot is now valued at about 23 times this year’s consensus earnings estimate, but its return on capital is close to three times that of peers.

24/7 Wall St. covered the earnings report, but we wanted to see how Wall Street analysts were treating Home Depot afterward. Here are some of the top analyst calls seen in Home Depot after earnings.

Argus reiterated its Buy rating on Home Depot and raised its target price to $190 from $180. The firm was positive about its increasing returns on capital, signs of improving customer service during recent store visits, rising home prices, and impressive execution of the business plan.

Merrill Lynch reiterated its Buy rating and was encouraged to see another strong quarter with underlying strength driven by a strong macro backdrop. The firm noted that the two hurricanes added 122 basis points to comps but negatively impacted EBIT margin by $51 million (or $0.05 per share). Merrill Lynch’s investment rationale on Home Depot said:

Superior strategy and execution are underpinning Home Depot’s decoupling from the housing market, which continues to bounce at the bottom. Comps have outperformed, and big ticket purchases are growing again. Improvements to productivity and supply chain is helping to drive continued margin improvement. We expect Home Depot to exceed and lift its long-term guidance, supporting a gradual re-rating of the shares as investors see further evidence of decoupling from housing.

CFRA (S&P) had an interesting call here, with the firm lowering its rating to Hold from Buy while simultaneously lifting it 12-month target by two dollars to $171. That is using a multiple of 20.6 times the expected 2019 earnings report, based on higher same-store sales and market share gains.

BTIG reiterated its Buy rating and $175 target, noting that the housing fundamentals remain positive and the industry remains far from a peak level. The firm’s $175 price target is based on 21 times the firm’s 2018 earnings per share estimate.

Credit Suisse has an Outperform rating and raised its target price to $175 from $171. The firm raised its estimates after stronger results and after its outlook.

Other analyst calls were seen as follows:

  • RBC Capital Markets reiterated its Outperform rating and raised its target to $186 from $183.
  • SunTrust Robinson Humphrey maintained its Hold rating but raised its target from $157 to $167.
  • Telsey Advisoy has an Outperform rating and raised its target to $180 from $175.
  • UBS reiterated its Buy rating and raised its target to $186 from $175.
  • Wedbush Securities raised its target from $165 to $170 but still has a Neutral rating.

Home Depot shares were last seen trading at $165.47, closing down 1.5% on the day Wednesday. The home-repair retail giant has a 52-week range of $125.70 to $168.14. Its prior consensus analyst target from Thomson Reuters was about $174 before earnings, but that has now risen to almost $178 after target prices have been raised.

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