Is Now the Time To Buy This Home Improvement Company? – The Home Depot, Inc. (HD), Lowe’s Companies, Inc. (LOW)

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We ended the year with a strong performance as our business benefited from a continued recovery in the housing market coupled with sales related to repairs in the areas impacted by Hurricane Sandy,” said Frank Blake, Chairman & CEO of The Home Depot, Inc. (NYSE:HD).“I’d like to thank our associates for their hard work and dedication.”

Sneak peek

The Home Depot, Inc. (NYSE:HD) reported its better-than-expected earnings on Tuesday, Feb. 26, 2013, and gave very bullish statements on the future. Sales for fiscal 2012 were $74.8 billion, an increase of 6.2% from fiscal 2011. Management raised its dividend by 23% and announced a $17 billion share-repurchase program, an indication that housing is getting better, which is great for the economy.

The Home Depot, Inc. (NYSE:HD)Earnings per diluted share showed an increase of 21.5%, moving from $2.47 per diluted share in fiscal 2011 to $3 in fiscal 2012.

This has definitely raised some eyebrows bout whether or not it is the right time to buy some shares of Home Depot.

Let’s dig in deeper

The company reported sales of $18.2 billion for the fourth quarter of fiscal 2012, a 13.9% increase from the fourth quarter of fiscal 2011. An index of homebuilders climbed 1.5% as home sales increased more than forecast.

The board of directors of the world’s largest home improvement retailer announced a 34% increase in its quarterly dividend to $0.39 cents per share. The Home Depot, Inc. (NYSE:HD) jumped 5.3% after it raised its dividend and approved a $17 billion share buyback amid better-than-estimated earnings. This is the fourth time that the company has increased its dividend in as many years. This shows that it is moving in line with its targeted dividend payout of 50%. The dividend is payable on March 28, 2013, to shareholders of record on the close of business on March 14, 2013.

The dividend increase is a testament to our commitment to create value for our shareholders,” said Blake.

The Home Depot, Inc. (NYSE:HD) has an attractive Price-to-Sales ratio of 1.6 and a reasonable Price-to-Earnings ratio of 23. Its stock price has shown steady appreciation over the last year.  The presence of a 14th week in the last quarter added approximately $1.2 billion in sales for the quarter and the year.  Net earnings for the fourth quarter were $1.0 billion, or $0.68 per diluted share–whereas in the same period of fiscal 2011 net earnings were $774 million, or $0.50 per diluted share. The 14th week increased earnings per diluted share by approximately $0.07 for the quarter and the year.

Also the company’s service business continues to recover with double-digit growth. Moreover, the company reported strong sales on Black Friday, which drove record performance.This will mark the 104th consecutive quarter for the company paying a cash dividend. The company has an excellent record of returning more than $37.5 billion of cash to shareholders through repurchases, repurchasing approximately 1 billion shares, since 2002.

The complete earnings press release can be found here: Q4 2012 Home Depot Earnings Release (PDF)

Too many numbers, huh? Let’s loosen up a bit.

The face off

Lowe’s Companies, Inc. (NYSE:LOW) provides some tough competition to The Home Depot, Inc. (NYSE:HD). Lowe’s Companies, Inc. (NYSE:LOW) also recently reported its fourth-quarter earnings, which were better than expected, but the guidance for 2013 was disappointing.

Same store sales were up by 1.9% at Lowe’s Companies, Inc. (NYSE:LOW), which is not bad. Meanwhile, The Home Depot, Inc. (NYSE:HD)’s same store sales had a gain of 7% when the Street was just looking for 4%. In fact, this is Home Depot’s best since 2004. This has resulted in the widest gap (of 520 basis points) in more than 13 years between the two companies on this vital key metric. Even when compared on the grounds of sales per square foot, Home Depot has a better report card. Home Depot’s sales per square foot were $318, up 13.3% from the bottom, whereas at Lowe’s these were much lower at $256.52, up only 3.2% from the bottom.

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