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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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About the Author

Jaime M Katz

Senior Equity Analyst
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Jaime M. Katz, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She covers home improvement retailers and travel and leisure.

Before joining Morningstar in 2011, Katz was an associate for Credit Agricole Corporate and Investment Bank. She also worked in equity research for William Blair for three years and spent three years in asset management at Mesirow Financial.

Katz holds a bachelor’s degree in economics from the University of Wisconsin and a master’s degree in business administration from the University of Chicago Booth School of Business. She also holds the Chartered Financial Analyst® designation. She ranked first in the leisure goods and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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