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Stock Analyst Update

Home Depot's Still a Great Long-Term Stock

Short-term problems create a buying opportunity.


What Happened?
Home Depot (HD) on Thursday morning warned investors that sales and earnings would fall short of analysts' estimates for the third and fourth quarters of fiscal 2000. The company cited four reasons: weak prices for lumber, drywall, and other building materials; the lack of major weather-related disasters such as hurricanes this year compared with last year; the lack of Y2K-related sales of such products as generators and flashlights; and an overall weak consumer spending environment. In early trading, the stock was down more than 25%, to $36.

What It Means for Investors
As we've said before, we think the company's overall long-term outlook is excellent despite its short-term problems, and we would view the recent price drop as a buying opportunity. The reasons for the earnings shortfall all seem to be temporary, and company chairman Arthur Blank stated on Thursday morning's conference call that he still expects earnings for fiscal 2001 to grow 23%-25% based on conservative estimates.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.