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The Home Depot, Inc. (HD): Is This Market Still Building Shareholder Value?

Home Depot Inc. (NYSE:HD)After several years in the housing market doldrums, the news is finally starting to get good. Since 2007, many consumers who were not in danger of losing a home to foreclosure still sat on the sidelines as values tumbled. Today, however, with news on the upswing, housing inventory is beginning to move again, and those who aren’t buying are renovating. This is great news for the big box home improvement companies like The Home Depot, Inc. (NYSE:HD).

Profiting with the do-it-yourselfers

The Home Depot, Inc. (NYSE:HD) is perfectly positioned to take advantage of both new and existing home remodels by consumers, as well as those of commercial entities. Although the recent U.S. job market report was somewhat disappointing, Home Depot shares continue to soar.

This could be due in large part to the rising housing market, as an upswing in housing typically equates to a strengthening home improvement arena as well. Psychology may also play a part in this, as consumers are realizing that investing in an appreciating asset, versus a depreciating one, is much more preferable.

The Home Depot, Inc. (NYSE:HD)’s rising share price may also have something to do with the private equity owners of the company filing for an IPO. HD Supply is Home Depot’s former contracting, construction, and industrial supplies distribution division that was sold to private equity Carlyle Group LP (NASDAQ:CG) back in 2007. This entity saw a 14% rise in growth in 2012, bringing in approximately $8 billion in revenue.

Being a key player in the somewhat fragmented home improvement sector, Home Depot has, admittedly, been revamping itself with a concentration on square footage growth of its stores, along with maximizing productivity from the company’s existing store base.

The actual operation of the company’s stores has also become much more user friendly. This, too, should help to bring in more customer traffic, in turn helping to increase the stores’ bottom line revenue and net profits. In addition to its vast product offerings, Home Depot attributes its success to its skilled employees, as well as technological advancements.

Company shareholders of The Home Depot, Inc. (NYSE:HD) have been long rewarded. In fact, over the past 26 years, Home Depot has raised its stock dividend from $0.06 per share to $0.39. In addition, Home Depot plans to grow its return on invested capital to 24% over the next three years.

Other big box options

Given the impressive record of The Home Depot, Inc. (NYSE:HD) in the big box home improvement world, Lowe’s Companies, Inc. (NYSE:LOW) actually lags as a distant second, although the company’s share price is still up more than 5% year-to-date. On the dividend side, though, shares of this company are not likely a good candidate for income, with its somewhat low dividend yield of 1.7%.

In light of the recent upswing in the housing sector, though, Lowe’s has plans to expand its work force to the tune of adding roughly 9,000 additional permanent part-time jobs. This is good news for the company, and given Lowe’s solid stock performance and notable return on equity, the shares are rated as a “buy” by a number of analysts. With this in mind, Lowe’s Companies, Inc. (NYSE:LOW) shares could turn out to be a good growth play over the long haul.

Other big box retailers don’t quite have the same positive sentiment as The Home Depot, Inc. (NYSE:HD) or Lowe’s. Take, for example, Office Depot Inc (NYSE:ODP). This struggling office products and services provider has lagged, primarily in its service areas such as printing and reproduction, as consumers are becoming increasingly more adept at handling these duties themselves.

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