Home Depot (HD) Aims at Strategic Growth: Should You Hold?

With a solid earnings trend, ongoing expansion strategies and consistent focus on developing merchandising tools, The Home Depot, Inc.HD remains confident of sustaining its growth momentum. Also, shares of the world's largest home improvement specialty retailer have jumped over 11% in the past one year.

Home Depot is a leading player in the highly-fragmented home improvement industry. Moreover, the company is revamping itself by concentrating on square footage growth and maximizing productivity from its existing store base. In order to make its store operations simpler and more customer-friendly, the company has implemented significant changes. We believe these initiatives will induce more traffic to its stores.

The company remains keen on building its interconnected capabilities. In addition, the company is constantly investing in content, developing its website and improving mobile experience to provide better customer experience.

Additionally, Home Depot's interconnected strategy goes beyond the dot.com investments as it continues to invest in fulfillment options to cater to customers' demand. Subsequently, it has completed the roll-out of a new customer order management system (COM) in all its U.S. stores. Further, the company has been launching its Buy Online Deliver From Store (BODFS) capability, enhancing the delivery process and intends to fully implement it by the end of fiscal 2016. These initiatives will drive the company's top and bottom lines in the long run.

Further, Home Depot appears compelling from the earnings perspective. Notably, the company retained its four-year long trend of beating earnings estimates, delivering a positive earnings surprise yet again in second-quarter fiscal 2016. The company posted better-than-expected results for the second quarter, gaining from the persistent strength in the housing market. Also, it reached a key milestone in the quarter, recording the highest quarterly sales and net earnings. (Read: Home Depot Retains Trend: Beats Q2 Earnings, View Up ).

HOME DEPOT Price and Consensus

HOME DEPOT Price and Consensus | HOME DEPOT Quote

Consequently, management raised its earnings guidance for fiscal 2016, while retaining its sales and comparable-store sales projections. Also, the Zacks Consensus Estimate for fiscal 2016 and fiscal 2017 has trended upward over the last 7 days. The estimate for fiscal 2016 increased 3 cents a share to $6.32, while the estimate for fiscal 2017 was up 4 cents a share to $7.15. All these factors inspire optimism about Home Depot's future performance.

However, the company faces intense competition from specialty stores and mass retailers, along with the impact of soft economic recovery on discretionary spending, which may prove to be deterrents.

Given the pros and cons embedded in the stock, Home Depot currently carries a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Investors interested in the retail space may consider some better-ranked stocks such as BMC Stock Holdings, Inc. BMCH , American Eagle Outfitters, Inc. AEO and DSW Inc. DSW , all carrying a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.