Home Depot (HD) Analyst Day Preview - Wedbush

Wedbush analyst, Seth Basham, thinks Home Depot (NYSE: HD) has benefited from favorable macro tailwinds and strong execution propelling market share gains under new CEO Craig Menear to drive earnings upside. Tomorrow’s analyst day in Atlanta should reassure investors that at least mid-teens 2016 and medium-term EPS growth is achievable, even with operating margins at new peaks.

Tomorrow, HD will likely reiterate its FY15 guidance and speak to good Black Friday trends. More importantly, the company will likely introduce FY16 guidance and provide a new medium-term outlook embedding mid-teens EPS growth with ~4%+ comps and 50+ bps of annual operating margin expansion. They also expect medium-term ROIC forecasts over 28% and consistent capital allocation policies.

Despite strong fundamentals, relative valuation keeps the analyst at Neutral. 2016 valuation is now at 21.8x PE and 12.8x EV/EBIDTA, which exceeds three-yearhistorical averages relative to itself, the S&P 500 and LOW; indeed valuation multiples top LOW by ~230 bps on PE and EV/EBITDA, levels about in line with peak gaps in the past three years.

The firm maintained a Neutral rating and $135 PT.

For an analyst ratings summary and ratings history on Home Depot click here. For more ratings news on Home Depot click here.

Shares of Home Depot closed at $134.53 yesterday.

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