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The Home Depot: Poised for a Turnaround
6/1/07
Monday, June 4, 2007
The Home Depot (NYSE:HD), the top home-improvement retailer in the US, Mexico and Canada, has
suffered two big blows. First, the residential real estate market has
taken a hit and the do-it-yourself upgrading of homes has slowed to a
snail's pace. Second, the infamously bad customer service influenced an
exodus from The Home Depot in lieu of its more competent competition.
But now, the turnaround is beginning. The biggest reason for this is HD's new chairman and CEO, Frank Blake, who took the helm this year after poor performance and outrageous compensation package concerns led to the resignation of former CEO Robert Nardelli.
Nardelli's strategy had been to grow The Home Depot by buying wholesale distributors, and to offset acquisition costs by cutting essentials -- like staff! If you've been into a Home Depot over the last several years, you might have found yourself wandering the huge aisles looking for someone -- anyone -- to help you pick out nails or paint. I know it frustrated me, for one. And it hurt The Home Depot as a whole, allowing the more people-friendly Lowe's Companies, Inc. (NYSE:LOW) to step in as a serious competitor. I wrote about my own experiences many months back in my blog.
But one of the few positive achievements Nardelli accomplished during his time at HD was bringing Blake on board in 2002. Before that, Blake was at General Electric Company (NYSE:GE) as well as holding the post of deputy secretary at the Department of Energy. His salary pales in comparison to Nardelli's shocking overcompensation, and unlike Nardelli, Blake's bonuses are pinned to meeting certain financial mileposts. This is a smart move on HD's part, and I like Blake's focus back on the stores -- he is restaffing them and including specialists in the staff.
The Home Depot, like most businesses connected in some way to the housing market, is affected by the slump in real estate. People are buying less homes and are tightening their wallets -- which often means home improvement projects are put on the back burner. Rather predictably, same store sales fell 8% in HD's first quarter 2007 results. However, The Home Depot is making some smart moves. In addition to focusing money back on the stores, it has started an installation business squarely targeting retiring baby boomers who are increasingly wanting others to do their projects for them.
Type of stock: The leader in home-improvement retail, this chain has suffered under poor management and the downturn in the housing market, but its new management is tops and when the next real estate cycle starts -- in four or five years, The Home Depot will improve.
Price target: Currently trading at $39.21, I'd feel comfortable picking up The Home Depot in a market pullback and then holding on for the longer term. Once the housing market picks back up, we could see The Home Depot swing back up to the $60's, where it was at the height of the real estate boom.
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The Home Depot: Poised for a Turnaround
But now, the turnaround is beginning. The biggest reason for this is HD's new chairman and CEO, Frank Blake, who took the helm this year after poor performance and outrageous compensation package concerns led to the resignation of former CEO Robert Nardelli.
Nardelli's strategy had been to grow The Home Depot by buying wholesale distributors, and to offset acquisition costs by cutting essentials -- like staff! If you've been into a Home Depot over the last several years, you might have found yourself wandering the huge aisles looking for someone -- anyone -- to help you pick out nails or paint. I know it frustrated me, for one. And it hurt The Home Depot as a whole, allowing the more people-friendly Lowe's Companies, Inc. (NYSE:LOW) to step in as a serious competitor. I wrote about my own experiences many months back in my blog.
But one of the few positive achievements Nardelli accomplished during his time at HD was bringing Blake on board in 2002. Before that, Blake was at General Electric Company (NYSE:GE) as well as holding the post of deputy secretary at the Department of Energy. His salary pales in comparison to Nardelli's shocking overcompensation, and unlike Nardelli, Blake's bonuses are pinned to meeting certain financial mileposts. This is a smart move on HD's part, and I like Blake's focus back on the stores -- he is restaffing them and including specialists in the staff.
The Home Depot, like most businesses connected in some way to the housing market, is affected by the slump in real estate. People are buying less homes and are tightening their wallets -- which often means home improvement projects are put on the back burner. Rather predictably, same store sales fell 8% in HD's first quarter 2007 results. However, The Home Depot is making some smart moves. In addition to focusing money back on the stores, it has started an installation business squarely targeting retiring baby boomers who are increasingly wanting others to do their projects for them.
Type of stock: The leader in home-improvement retail, this chain has suffered under poor management and the downturn in the housing market, but its new management is tops and when the next real estate cycle starts -- in four or five years, The Home Depot will improve.
Price target: Currently trading at $39.21, I'd feel comfortable picking up The Home Depot in a market pullback and then holding on for the longer term. Once the housing market picks back up, we could see The Home Depot swing back up to the $60's, where it was at the height of the real estate boom.
hilaryonstocks at 1:57:00 PM EDT Blog about this entry |
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This entry has 9 comments: (Add your own)
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It's hard to believe Home Depot will make a turnaround, at least not any time soon. I thought people were being harsh after reading the comments on the blog about how bad Home Depot was. But recently I had to go to Home Depot for something Lowes didn't carry. There is a night and day difference between Lowes and Home Depot. They (HD) could terminate all the employees except one, to keep people from leaving without paying, checking themselves out. You wouldn't see much, if any, difference.
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Agree...Agree with comments above...Lowes beats Home Depot...I'd wait to buy either... Doesn't look like any turn around soon in the home or real estate markets.
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The worst of the retailer/building companies. Lowes eats their lunch. HD made a huge distribution mistake, placing too many stores far too close together. They begin to unwind this mistake. Too soon to buy.
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I find these comments interesting but far from accurate in this area in the northwest. Lowes is do difficult to get any help from Home Depot on the other hand seems to know the inventory and how to work with it much better
6/18/07 11:38 PM
The energy production plans of China and especially nuclear, I am considering buying uranium stocks because of their plans to build several hundred nuclear generating plants.
I am confident on most your predictions and will continue to follow your advice, even Home Depot!
jerry allaway