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The shares of Home Depot (HD) first discussed on May 20, 2009 at a price of $23.83, continue to venture north this winter, pushing above $37, and now may be a good time to consider taking some profits with HD, if you're in at/near $24. However, those investors who can tolerate the risk can maintain their full position and go for an even bigger gain, as HD will likely continue to head higher.
HD will likely post a 2.5-3.0% revenue increase in FY2012, and a similar rise in FY2013, on better international store performance. Meanwhile, U.S. store traffic should gradually improve, but big-ticket remodeling revenue will remain sluggish in today's 'frugal consumer' U.S. market. In FY2012, same store sales will probably rise 2.0-2.5%.
In addition, Home Depot's ongoing customer service improvements should help generate customer loyalty, and the U.S. aging stock of homes also bodes well for HD: like those Americans who can't buy a new car, those aging homes (like used cars) will have to be maintained, as the current homeowners may be living there awhile.
The Thomson Reuters First Call FY2011/FY2012 EPS estimates for STD are $2.32 to $2.66.
Technically, HD's sustained stay above the key, 50-day moving average is encouraging. There will be psychological resistance at $40, but the view from here argues that the uptrend is stronger, and should prevail.
2011 Outlook: I view the Home Depot as a long-term play, but if investors are looking to sell HD within the year, it's probably best to take your profits after it rises to $43-45, if it fails to rise above $46.
Stock Analysis: I consider Home Depot to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position now; I'd put a sell/stop loss at: $24.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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