Home Depot's earnings raise the roof

The home improvement chain ran past expectations, hiked its dividend and announced a huge share buyback -- all thanks to a rebounding housing market.

By Jonathan Berr Feb 26, 2013 2:33PM
A customer pushes a cart through a Home Depot Inc. store in Washington, D.C. on Nov. 12, 2012 (© Andrew Harrer/Bloomberg via Getty Images)Home Depot (HD) shares are on the move today after the Atlanta-based home improvement chain posted better-than-expected earnings, raised its dividend and announced a $17 billion share buyback.

Net income in the last quarter rose 32% to $1.02 billion, or 68 cents, versus $774 million, or 50 cents, a year earlier. Revenue surged 13.9% to $18.2 billion. Excluding one-time items, profit was 67 cents, topping the 64-cent consensus forecast of Wall Street analysts. The revenue figure also exceeded the $17.69 billion Wall Street estimate.
 
Wall Street isn't reacting to Home Depot's earnings forecast for the year of $3.37 per share, which lagged forecasts of $3.49. After all, rival Lowe's (LOW) also gave disappointing earnings guidance recently, but there are many reasons to be bullish on both stocks.

Home Depot and Lowe's will be plenty busy with Superstorm Sandy-related work for a while longer after it damaged or destroyed more than 600,000 homes in New York and New Jersey alone.

Also, the good news about the housing recovery continues.

The closely watched Standard & Poor's Case-Schiller home-price indexes posted gains in December, reversing a decline in November. Nineteen cities reported increases in home prices.  New York area prices, though, slipped, and Chicago's market was little changed. IHS Global Insight argues in a report that housing should continue to gain strength because the economy is growing and adding jobs. 

Says IHS: "[I]nventories are dropping because builders are not putting up homes fast enough to meet underlying demand (which mostly consists of replacement demand and demand from newly formed households)."

Home Depot attracts both people who repair their own homes and small contractors. During the latest quarter, the average purchase at the chain was $55.46, an increase of 5.6% from a year ago.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.

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