The Home Depot Inc. (HD) announced that is has accelerated a buyback of $1.0 billion shares with Barclays Capital by issuing a $2.0 billion senior note. The remaining $1.0 billion will be used to refinance a senior note maturing in March 2011.
The company believes that the current interest rate environment is attractive and, therefore, wants to take advantage by raising additional debt capital for share repurchase purposes.
Home Depot has always been committed to creating value for its shareholders by returning capital in the form of dividends and through share repurchase programs. The new accelerated share repurchase program is in addition to the company’s earlier announced $2.5 billion share repurchase program throughout 2011.
Since the launch of its share repurchase program in 2002, the company has purchased approximately $30.1 billion of its common stock by the end of fiscal 2010. Currently, Home Depot had remaining $9.9 billion in its share repurchase approval.
Prior to this, Home Depot surprised with fourth-quarter 2010 adjusted earnings of 36 cents a share. The adjusted earnings not only surpassed last year’s 24 cents (an increment of 50%), but also outpaced the Zacks Consensus Estimate of 30 cents. The growth in earnings was primarily attributable to increased sales and improved margins backed by effective cost management.
Home Depot has increased its fourth-quarter 2010 cash dividend by 6% to 25 cents a share. Since the last 96 quarters, the company has a record of paying quarterly cash dividends to its shareholders.
The company’s sales and earnings per share remained unchanged for fiscal 2011. Home Depot is expecting an increase of 9.5% in adjusted earnings from fiscal 2010 to $2.20 a share for fiscal 2011 on the back of a 2.5 % surge in sales.
Moreover, Home Depot has taken strategic steps to optimize its capital allocation and concentrate on core business activities. Consequently, the company has closed its underperforming stores, reduced its new store opening pipeline, and exited businesses like EXPO, THD Design Center, Yardbirds, and HD Bath. The company plans to open 10 new stores in fiscal 2011 and generate a cash flow of approximately $5.7 billion from the business.
However,the company’s business is highly competitive, primarily based on customer services, price, store location and assortment of merchandise. The company faces stiff competition from local, regional and international players such as Lowe’s Companies Inc. (LOW) and Target Corporation (TGT). To maintain its market share, the company is making selective acquisitions and strategic alliances with third parties, which are increasing its operational risks.
Home Depot currently holds a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock. Besides, the company retains a long-term ‘Neutral’ recommendation on the stock.
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