Despite Strength, Home Depot Shares Are 'Nearly Full Valuation'

Seth Basham of Wedbush maintains a Neutral rating on shares of Home Depot Inc (NYSE: HD) with a $145 price target after chatting with the company's CEO Craig Menear and chief financial officer Carol Tome during a meeting with the sell-side community.

While Basham stated that he left the meeting feeling "more comfortable" with near-term trends and the potential for medium-term earnings growth, a "nearly full valuation" of the stock should keep investors sidelined.

Meeting Recap

Home Depot's management team said it was "pleased" with quarterly sales to date, and the analyst believes business accelerated during the first two weeks of the quarter. Accordingly, the company could see upside to its fourth quarter implied comps of slightly above 3 percent if these trends continue.

The retailer is seeing strong sales in seasonal decor and the expansion of gift centers. Appliances remain a "notable contributor."

Basham added that perhaps more important to consider is the fact that Home Depot does not feel the heightened promotional environment across many retailers is impacting its ability to achieve its financial goals.

Macro Environment

Home Depot's positive outlook is based on "decent" GDP growth, appreciation in home prices, housing turnover and household formations. Moreover, available mortgage credit also supports the company's housing views while the analyst believes that an interest rate hike shouldn't impact homeowners' ability to cover their mortgage payments.

HD Pro

Home Depot's Pro segment represents approximately 40 percent of sales and continues to outperform the core business. Basham expects this trend to continue moving forward, as the company boasts the right breadth and depth of inventory at favorable price points.