Valuentum Exclusive Analysis for the Discerning Investor

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Image Shown: Shares of dividend growth idea Home Depot Inc have surged higher year-to-date on the back of the home improvement retailer’s stellar operational performance and impressive free cash flow generating abilities. We liked what we saw in Home Depot’s latest earnings report published on November 16. 

Demand for home improvement activities appears to be holding up well, even as lockdown measures related to the COVID-19 pandemic ease up across North America. The outlook for housing activity and construction demand more broadly is quite bullish for several reasons including the need for US housing supply to catch up with new household formation and the large $1+ trillion US infrastructure fiscal stimulus bill that was recently signed into law. Home Depot has exposure to this upside via the Pro side of its home improvement retailing operations and its recently enlarged MRO business. We view Home Depot’s dividend growth trajectory quite favorably and continue to like shares of HD as an idea in the Dividend Growth Newsletter portfolio. In light of better-than-expected fundamental performance of late, we may tweak our cash flow valuation model of the firm. As of this writing, shares of HD are trading near the top end of our fair value estimate range (which currently sits at $397 per share).