The home improvement business has been one of the few bright spots in a weak U.S. retail environment in recent quarters, and the latest data from Bank of America suggests that trend continued in February. Bank of America analyst Elizabeth Suzuki says Home Depot Inc (NYSE: HD ) remains the top stock to own in the red-hot home improvement industry.

Bank of America has compiled credit and debit card data from its customers and found that home improvement spending increased by the mid-single digits in February, best of all the hardline retail categories.

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Suzuki says Home Depot is the best-of-breed stock to own in home improvement, but said it's not the only game in town for investors.

"With a favorable U.S. housing cycle, we believe the home improvement sector still has room to run," Suzuki says.

"We believe a multiple approximately in line with HD's long-term average is warranted given consistent execution, strong industry fundamentals, and a generous capital return program."

In addition, Suzuki is bullish on Lowe's Companies ( LOW ), calling the company an undervalued "unloved underdog." Finally, Suzuki also said the smaller Floor & Decor Holdings ( FND ) is a higher-growth alternative to Home Depot and Lowe's.

CFRA analyst Victor Ahluwalia says investors shouldn't worry about Home Depot's premium valuation because it has earned that market respect by consistently outperforming the competition. In the most recent quarter, Home Depot reported 7.5 percent same-store sales growth compared to only 4.1 percent growth for Lowe's.

Ahluwalia says the economic environment will continue to favor Home Depot and expects another 5 percent same-store sales growth and 5.3 percent revenue growth from the company in 2018.

"We view HD benefiting from tax reform, which should lead to home price appreciation and spur consumer demand," he says.

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He says sales growth will be driven in part by professional customer demand, an area in which Home Depot holds a sizable market share lead.

"Favorable demographic trends, such as the aging of houses and relatively low interest rates, should help support home remodeling efforts over the long term as HD benefits from an aggressive share buyback program," Ahluwalia says.

Bank of America has a "buy" rating and $215 price target for Home Depot. CFRA has a "buy" rating and $209 target for HD stock .

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Raymond Mitchell, Author

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