Home Depot (HD) reported solid fiscal fourth-quarter results Tuesday that revealed strong comparable store sales and signs that the US housing market continues to strengthen. However, we think the firm’s shares are getting a bit expensive following its price move after earnings, and our $38 per share fair value estimate for the world’s largest home-improvement retailer remains unchanged.
Home Depot’s revenue advanced 5.9% in the fourth quarter from the same period a year ago thanks to a 5.7% jump in comparable store sales (6.1% in the
Net earnings for the home-improvement retailer increased nearly 39% to $0.50 per share from $0.36 per share in the year-ago period (consensus was at $0.42 per share). Gross profit expansion was nearly 7% during the period and outpaced sales growth as the firm extracted greater profitability via cost-cutting endeavors and improved distribution measures. The increase in SG&A expenses also lagged the pace of revenue expansion in the quarter, driving over 28% growth at the operating-income level. We were very impressed with Home Depot’s ability to translate its solid revenue expansion into even greater increases on the operating line. Consolidated net earnings jumped nearly 32% in its fourth quarter, while share buybacks bolstered growth in earnings per share.
Looking ahead, Home Depot expects fiscal 2012 sales growth of 4% driven by low-single-digit comparable store sales growth. Earnings-per-share is expected to expand to $2.79 including share repurchases (consensus was at $2.77 per share) as the firm expects moderate gross margin expansion to lead to as much as 50 basis points in operating-margin expansion. Though we liked the firm’s outlook for the year, we remain on the sidelines based on valuation.