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Home Depot and its investors gear up for spring home improvement

Written By: Angie Chung on May 5, 2011 No Comment

Yahoo Finance; Angie Chung/MEDILL

It may not feel like spring quite yet in northern climes like Chicago, but that isn’t stopping home improvement retailer Home Depot from gearing up for the crucial spring selling season. Investors may want to do the same.

After a long hibernation since 2006, Home Depot Inc. posted its first annual sales increase in the year ended Jan. 30. And although the housing market is still languishing, home improvement sales are rebounding in this spring season with the help of an improved economy.

With all that in mind, is now a good time for investors to buy Home Depot stock, or is it already fully valued?

Home Depot, the world’s largest home improvement retailer, is up 37 percent from its 52-week low of $27.07 on July 19, and just 4 percent below the high of $38.48 on Feb. 18.

“Expectations for home-related stocks have gotten ahead of the fundamentals,” wrote David Strasser, an analyst at Janney Capital Markets, in a research note. He said the company outperformed in its fourth fiscal quarter, but that its shares have gotten expensive.

Others, including analyst Christopher Horvers at J.P. Morgan, say there’s still more room for growth. While lowering its first quarter earnings estimate by a penny to 49 cents, citing “un-spring-like” weather in April, Horvers thinks its stock is still attractive.

“We believe it is too early to call the game over,” Horvers wrote in a note to investors. “May is also the largest month of the year, and all that is necessary is for spring to finally break in the northern half of the country.”

Horvers has a December 2011 price target of $43 for Home Depot.

The company’s trailing 12-month price-to-earnings ratio is 18.41, about 3 points higher than the 17.16 for the S&P 500 index. But Home Depot is in line with the home improvement retail index P/E ratio of 18.05.

At year-end the retailer had 2,248 stores across the world, including 60 in the Chicago area. It plans to open 10 stores this year, two in the U.S., one in Canada and seven in Mexico.

 

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