Home Depot Q2 Sales Jump Over 23% Amid COVID-19 Restrictions; Target $320

Home Depot Inc, the largest home improvement retailer in the United States, reported sales of $38.1 billion for the second quarter of fiscal 2020, a 23.4% increase from a year earlier as consumers ordered more home improvement products amid COVID-19 restrictions, sending its shares up about 3% in pre-market trading on Tuesday.

The home improvement retailer said its net earnings for the second quarter of fiscal 2020 were $4.3 billion, or $4.02 per diluted share, compared with net earnings of $3.5 billion, or $3.17 per diluted share, a year earlier.

For the second quarter of fiscal 2020, diluted earnings per share increased 26.8% from the same period in the prior year.

Home Depot also announced that its board of directors declared a second-quarter cash dividend of $1.50 per share.

Home Depot shares rose about 3% to $295.70 in pre-market trading on Tuesday after ending 2.7% higher at $288.24 a day before. The stock is up over 30% so far this year.

Executive comments

“The investments we have made across the business have significantly increased our agility, allowing us to respond quickly to changes while continuing to promote a safe operating environment. This enhanced our team’s ability to work cross-functionally to better serve our customers and deliver record-breaking sales in the quarter,” Craig Menear, chairman, CEO and president said in a press statement.

“We remain focused on continuing the momentum of our One Home Depot investment strategy that we believe will position us for continued growth over the long-term, while at the same time maintaining the flexibility to navigate the demands of the current environment. Through it all, we will continue to lead with our values by doing the right thing and taking care of our people.”

Home Depot stock forecast

Twenty-three analysts forecast the average price in 12 months at $283.33 with a high forecast of $320.00 and a low forecast of $221.00. The average price target represents a -1.70% decrease from the last price of $288.24. From those 23, 15 analysts rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $285 with a high of $380 under a bull scenario and $185 under the worst-case scenario. BofA Global Research raised price objective to $290 from $270, Oppenheimer raised target price to $320 from $274 and Credit Suisse raised it to $300 from $269.

Other equity analysts also recently updated their stock outlook. Home Depot had its price target upped by stock analysts at Raymond James to $295 from $250. The firm currently has an “outperform” rating on the home improvement retailer’s stock. Truist Securities raised their price objective on Home Depot from $300 to $240.

We think it is good to buy at the current level and target $320 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“We are Overweight HD given its best-in-class nature and structural housing tailwinds beyond N-T disruption from COVID-19. The stock seems attractively valued in the context of a potential 2H’20/2021 economic/housing recovery,” said Simeon Gutman, equity analyst at Morgan Stanley.

Upside and Downside risks

Upside: 1) Housing market relatively stable through COVID-19 headwinds. 2) Initiatives gain momentum and drive top-line acceleration in 2020-2021 – highlighted by Morgan Stanley.

Downside: 1) A slowdown in the home improvement market. 2) Greater than expected interest rate hike. 3) Departure of key leadership.