Yahoo Finance Home Depot & Lowe’s shares priced to perfection
Update: Home Depot shares are higher in the pre-market after fourth quarter profits and sales beat analyst estimates.
The Home Depot, Inc. (HD)
NYSE
Watchlist
112.28
0.04(0.04%)
Feb 23, 4:04PM EST
Pre-Market : 116.00
3.72 (3.31%)
7:06AM EST
Net earnings for the fourth quarter were $1.4 billion, or $1.05 per diluted share, compared with net earnings of $1.0 billion, or $0.73 per diluted share, in the same period of fiscal 2013. Sales were $19.2 billion an 8.3% increase from the year ago period. Overall comp store sales during the quarter rose 7.9% while store sales in the U.S. rose 8.9%. Home Depot boosted is quarterly dividend by 26% to $0.59 cents a share and also announced an $18B share repurchase program.
The 2015 outlook was tempered by what the company described as a "significant strengthening of the U.S. dollar". Profits are now expected to be as much as $5.17 a share and sales may increase 3.5% to 4.7%.
Investors are hot for the home improvement retailers. Lowe’s (LOW) has seen its stock advance 39%, Home Depot (HD) 23% over the past six months pushing multiples on both stocks to multi-year highs. “The issue with Home Depot and Lowe’s is that they are trading at historically very high multiples,” observes Leigh Drogan, CEO of Estimize, whose firm tracks price-to-earnings multiples for both. “Lowe’s up around 29, Home Depot up around 25, these are above their five to eight year highs.”
Eurphoria for the shares is not without merit Drogan says, especially as the job market improves and with the 50% drop in oil prices since last year. “With the decline in oil prices there is a lot more money, retail sales, ex-energy have gone up pretty well.” In early February, Home Depot announced plans to hire 80,000 workers to accommodate the spring season which is the busiest selling season for the retailer.
Related: The Home Depot Preps for Spring with 80,000 New Hires
Investor optimism for the stocks is not necessarily being confirmed by recent housing data points. On Monday, existing-home sales in January fell to the lowest level in nine months according to the National Association of Realtors. Home sales dipped 4.9% to a seasonally adjusted annual rate of 4.82 million, below economist forecasts.
This followed a report last week by the Commerce Department which reported nationwide housing starts fell 2% to a seasonally adjusted annual rate of 1.065 million units in January. Overall permit issuance was down 0.7 percent in January to a rate of 1.053 million.
Despite the weaker numbers, The National Association of Home Builder’s Chief Economist David Crowe is predicting a pick-up. “After a strong single-family report in December, it is not surprising to see some pull back in January,” he said in a statement. “With continued job creation and a growing economy, single-family production should make gains in the year ahead.”
Related: Midwest Pushes Housing Starts Down 2 Percent in January
Lowe’s will report earnings on Wednesday morning.
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