Amazon-Proof Retail Stock: Home Depot

The home-improvement chain is in a good position to stand up to the world's largest online retailer.

(Image credit: JannHuizenga) (symbol AMZN) is projected to account for one-half of all internet-based U.S. retail sales by 2021, according to brokerage firm Needham & Co., up from about one-third of sales in 2016. The threat to competitors in the retail space has become so dire that a "Death by Amazon” index that tracks the stock prices of 54 retailers sits near a four-year low, according to research firm Bespoke Investment Group, which compiles the index.

Yet, there are a few big retailers that are finding ways to thrive despite the Amazon onslaught. Home-improvement chain Home Depot (HD) is one of them. Here's why its stores and its stock should stand up to competition from Amazon. (Share prices, returns and other data are as of April 25.)

Selling everything from paint to countertops, Home Depot leads the market for home renovation. Amazon sells tools and other home-improvement products. But it’s not in the business of selling and shipping bulky items, such as drywall or lumber. If you want a granite countertop, you’ll probably want to see it in a showroom, such as Home Depot’s.

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Nor is Amazon a player in renovation services, which Home Depot provides. About 40% of Home Depot’s sales now come from the company’s Pro Services, which offers bulk pricing, truck rentals and other benefits to professional contractors. Home Depot is expanding those services with speedier deliveries, new products and data analytics to help track and increase sales, says analyst Peter Benedict of brokerage firm Baird.

Overall sales should get a lift from other initiatives and industry trends, too. The firm is revitalizing about 500 stores to make them more customer-friendly. As retailers such as Sears (SHLD) falter, Home Depot should win some of their sales. And the company is ramping up its own online division, offering scores of products with free delivery to its stores. “While Amazon remains a persistent topic of conversation,” says Benedict, Home Depot’s business “should remain one of the more defendable in retail.”

Home Depot’s revenues hit $95 billion in the 12-month period that ended in January 2017, up from a low of $66.2 billion in its 2010 fiscal year. A housing slowdown would certainly curtail the company’s momentum. But as long as the economy and housing market keep percolating, Home Depot should be a winner.

Home Depot by the Numbers

  • Share price: $153.03
  • Market value: $183.8 billion
  • Price-earnings ratio: 21
  • Estimated 12-month profit growth: 11.3%
  • Dividend yield: 2.3%

Check out five other retailers that can stand up to Amazon.

Daren Fonda
Senior Associate Editor, Kiplinger's Personal Finance
Daren joined Kiplinger in July 2015 after spending more than 20 years in New York City as a business and financial writer. He spent seven years at Time magazine and joined SmartMoney in 2007, where he wrote about investing and contributed car reviews to the magazine. Daren also worked as a writer in the fund industry for Janus Capital and Fidelity Investments and has been licensed as a Series 7 securities representative.