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Shares of The Home Depot (HDFree Home Depot Stock Report) rose notably after the world's largest home-improvement retailer, which is also a Dow-30 component, reported strong fiscal fourth-quarter (ended February 3rd) results. The company earned $0.67 a share (excluding a $0.01 nonrecurring gain) in the term on sales of $18.2 billion, which compared favorably with our estimates of $0.65 and $17.6 billion, respectively. Both the bottom and top lines increased considerably from the year-earlier period (34% and 14%), helped by an extra week of sales (the fourth quarter of fiscal 2012 contained 14 weeks, while the comparable 2011 period was only 13 weeks).

It was not just an extra week of sales that drove the impressive results, however, as continued recovery in the housing market and repair and rebuilding efforts in the wake of Hurricane Sandy spurred sales and earnings. On point, comparable-store sales, which are not affected by the extra week, jumped 7.0% (up 7.1% in the United States). The number of customer transactions rose 8.6% year over year, while the average ticket climbed 5.6%. The gross margin was little changed and fell six basis points from the comparable 2011 period.

For the whole of fiscal 2012, earnings clocked in at $3.10 a share (excluding a $0.10 charge associated with closing stores in China), and the gross margin expanded 10 basis points. Sales totaled $74.8 billion, and comps rose 4.6% (4.9% in the United States). In fiscal 2011, The Home Depot earned $2.47 a share on sales of $70.4 billion.

Looking ahead, fiscal 2013, which is back to a 52-week year, should be another good one for the retailer. Management estimates that the top line will advance approximately 2%, while comps should push higher by about 3%. Nine new stores will likely be opened and both the gross and operating margins ought to improve modestly. The evolving recovery in the housing market should continue to be a driving force behind The Home Depot's results. Adding it all up, stock repurchases (see below) will probably aid share-net comparisons, and management guided to earnings of $3.37 a share this fiscal year. Although the housing recovery is underway, The Home Depot appears to be taking a somewhat conservative outlook, due to factors such as modest GDP growth and tight credit markets. At present, however, we are maintaining our slightly more aggressive estimate of $3.40.

The Home Depot also announced that it plans to return more money to shareholders. To wit, the quarterly cash dividend was raised 34%, to $0.39 a share. The first distribution in the new amount is payable March 28th. Additionally, the Board of Directors has authorized a $17 billion share-repurchase authorization, which replaces the previous buyback program. Management intends to complete the entire repurchase by the end of fiscal 2015. Roughly $4.5 billion will probably be used in the current fiscal year.

Investors appear to be more enthused with The Home Depot's results than those of Lowe's (LOW), the world's second-largest home-improvement retailer and HD's primary competitor, which announced January-period financials yesterday. LOW stock fell nearly 5% on the news, despite a generally upbeat report. Indeed, the company earned $0.26 a share on sales of $11.0 billion, which compared favorably with our estimates of $0.23 and $10.8 billion, respectively. Meantime, comparable-store sales rose 1.9%, a $5 billion share-repurchase plan was announced, and fiscal 2013 earnings were pegged at $2.05 a share, directly in line with our forecast. However, this guidance was a few pennies below Wall Street's consensus forecast.

In sum, we continue to believe that HD stock is a good selection for a variety of investors. The company is executing well, in our view, (improvements in customer service, information technology, etc.) and near-term results should be supported by recovery in the housing market. Factors such as modest GDP growth, tight credit markets, and elevated gasoline prices are potential headwinds, but we expect the retailer to deliver solid results, overall. Finally, the company's excellent Financial Strength rating, combined with the stock's below-market Beta and top score for Safety, should appeal to conservative accounts.

About the Company:The Home Depot, Inc. operates a chain of 2,256 retail building supply/home improvement “warehouse” stores across the United States, Canada, and Mexico. The company's average store size is around 105,000 square feet indoor, plus 24,000 additional square feet in its garden centers. The Home Depot's product lines include building materials, lumber, floor/wall coverings, plumbing, heating, electrical, paint and furniture, seasonal and specialty items, and hardware and tools.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.