Analyst Note| Jaime M. Katz, CFA |
We plan to raise our $217 per share fair value estimate for wide-moat Home Depot by a mid-single-digit rate after incorporating robust first-quarter sales growth of 33% (to $37.5 billion), which outpaced our estimate by $4 billion. Strength came from same-store sales that rose a whopping 31% (on top of a 6.4% rise a year ago), while orange box (ex-MRO) performance was also stout, with average ticket rising 10%, customer transactions higher by 19%, and sales per square foot up 30% as consumers embarked on big ticket projects. More impressive was the profitability Home Depot captured on its rising scale, delivering a 15.4% operating margin (up 380 basis points), despite commodity headwinds. And the firm continues to capture market share, with its top line outpacing building material and garden equipment and supplies industry growth that averaged 25% (seasonally adjusted, U.S. Census) in February-April.