TGT

Target Corporation

150.42
USD
2.46%
150.42
USD
2.46%
138.58 268.98
52 weeks
52 weeks

Mkt Cap 73.41B

Shares Out 488.04M

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Should you buy Home Depot as a safe haven in a struggling retail sector?

Home Depot (NYSE:HD) is hovering near a 14-month trading low despite releasing a positive earnings report last week. The chain of big-box home improvement stores has been dragged down by a general selloff in retail, as investors worry about inflation and the health of the consumer. However, given the firm's relatively strong quarterly report, could the stock represent an oasis in an otherwise desolate retail environment? The retail marketplace has had a difficult run recently, including disappointing commentary from large box stores like Target (TGT), Walmart (WMT). The retail sector also has seen many downgrades as concerns swirl around margin compressions, supply chain issues and inflation. Home Depot is not immune to these factors. HD currently trades near $283, which means the home improvement retailer has fallen nearly 31% since the end of last year. This decline has outpaced the broader market, with the S&P 500 dropping around 19% over the same time. Commenting on the over retail environment, Citi analyst Paul Lejuez explained: “On the demand side, lack of stimulus and the burden of higher food and fuel prices are squeezing lower income consumers, leading to a pullback in discretionary categories.” Lejuez also stated: “On the cost side, companies are facing higher-than-expected pressure following escalation of fuel/supply chain costs resulting from the war in Ukraine.” Earnings & Outlook Last week, HD came out with a strong Q1 earnings report, where the firm surpassed expectations with its EPS and revenue figures. In addition, the company raised its guidance for the full year. Specifically, HD topped Q1 GAAP EPS of $4.09 by $0.39. Revenue reached a total of $38.91B, which was up 3.8% from last year. The top-line number also beat expectations by $2.13B. Putting the numbers into context, Ted Decker, CEO and president of Home Depot stated: "Fiscal 2022 is off to a strong start as we delivered the highest first quarter sales in company history." Still, even as he praised the company's execution, Decker acknowledged what he called a "challenging and dynamic environment." Roughly three quarters of Wall Street experts view Home Depot (HD) in a bullish light. Of the 33 analysts surveyed by Seeking Alpha, 16 believe Home Depot is a Strong Buy, while another eight recommend the stock as a Buy. There is a contingent of analysts who have a less sunny view of the HD's prospects. Nine experts list the stock as a Hold. Still, no analysts have an outright bearish opinion on the stock, with no current Sell ratings on Wall Street. See breakdown below: Quantitative measures agree with the more cautious views of the stock. Seeking Alpha's Quant Ratings give the stock a stellar A+ for profitability and a solid B+ for momentum. However, HD gets a D+ for valuation and a D- for growth. Rob Barnett, a Seeking Alpha contributor highlights that HD has strong fundamentals and should offer a buying opportunity soon, just not yet as the stock may be impacted by a cyclical economic down turn. On the other side of the argument, Citi says investors should still be looking for quality stocks when dealing with the Fed rate hike cycle and a possible recession, and lists Home Depot as a possible candidate.

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