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Most homeowners are familiar with Home Depot (HD Free Home Depot Stock Report) as a source for tools, building supplies, and equipment for do-it-yourself (DIY) projects. Many contractors shop there, too. The increase in business for the Dow-30 component in fiscal 2015 (ends January 30, 2016) is reflected in the retailer’s strong results over the first three quarters and by the stellar performance of its stock against the backdrop of a challenging year for the broader market. For the full fiscal year, management expects the top line to rise 5.7%, to about $88 billion. Home Depot’s goals for fiscal 2016 include $101 billion in sales, a1.3-percentage-point increase in the operating margin, and an eight-percentage-point surge in the return on invested capital.

Externally, it comes as no surprise that Home Depot, as well as competitors such as Lowe’s (LOW), are benefiting from the recovery in the housing market. Management estimates that the company has a 15% share of the $550 billion domestic market. Internally, Home Depot has made changes in merchandising and the customer experience in recent years, and has determined that certain things (such as experimenting with a small-store format or expanding to new geographies) aren’t part of its game plan. The retailer is placing more emphasis on digital marketing and on-line sales, which enable customers to order on line and pick up their merchandise at the store. Using the VL Page_GraphHome Depot has tried to make shopping more appealing for professionals by establishing Pro Account Representatives and initiating a rewards program. Furthermore, the company has also enhanced the efficiency of its distribution system.

Our report in The Value Line Investment Survey shows how well the company and the stock have performed, not just of late but over an extended period. The Price Chart displays a path that is generally upward since early 2009. Just since the beginning of 2015, the share price has risen over 25%. Using the VL Page_Quarterly Revenues BoxThe Price Growth Persistence (displayed in the Ratings box) is 85 on a scale of 100. The Total Return box indicates that Home Depot stock has far outpaced the broader market over periods of one, three, and five years.

 The Quarterly Sales and Quarterly Earnings boxes show that both the top and bottom lines have been advancing nicely for the past several fiscal periods. The operating margin and net profit margin have been rising, too, as can be seen in the Statistical Array. To wit, we project solid increases in financial measures over the 3- to 5-year period; the growth rates are displayed in the Annual Rates box.

Home Depot is financially strong. The Ratings box shows that the company has a Financial Strength rating of A++, which is the highest possible rating. The company does have some leverage, as is displayed in the Capital Structure box, but this section of the page also shows that Home Depot has very healthy interest coverage. One reason for the high ratio of long-term debt to total capitalization is stock repurchases, which are mentioned in the Commentary and are evident in the Array. The company has been buying back stock since 2002. The Current Position box shows that Home Depot had more than $3 billion in in cash as of the start of November. In addition to the stock buybacks, management is also using some of its cash for dividends, and has a payout ratio target of 50%. The company is somewhat below this goal today. Likewise, the dividend yield, which can be seen in the Top Label, is slightly below the market median. Using the VL Page_Ratings BoxAccordingly, investors stressing income can do better. 

Home Depot stock has something to offer for many investors. The Ranks box shows that the equity is ranked 1 (Highest) for year-ahead relative price performance. It also garners our top mark for Safety, indicating that the stock is suitable for conservative accounts. This Safety rank reflects a combination of the aforementioned Financial Strength rating and a Price Stability index of 90 (out of 100), which can be viewed in the Ratings box. The issue’s one drawback is its lackluster 3- to 5-year total return potential, as is displayed in the Projections box. Despite this disadvantage, Home Depot stock is still an attractive choice for risk-averse investors.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.