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Healthy Outlook for Home Depot

The wide-moat retailer continues to stand its ground against online threats, but its shares are slightly overvalued today.

Wide-moat

While second-quarter comps and revenue were slightly below our implied forecast, operating efficiency prevailed, propelling earnings per share growth at a modestly faster rate than we anticipated. Home Depot maintained its full-year outlook but raised its earnings per share outlook to $6.31 (from $6.27) supported by 4.9% comps and 6.3% sales. Our prior outlook had surpassed the revised outlook, as we had already incorporated 16% earnings growth in 2016 ($6.34) prior to second-quarter results. That said, we plan to maintain our $125 fair value estimate and view shares as modestly overvalued, trading at 22 times our 2016 earnings forecast.

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