Home Depot shareholders shouldn’t worry about Amazon, this portfolio manager says

Considering how successful the e-commerce giant has been in almost every sector it has touched down in, betting against Amazon (Amazon Stock Quote, Chart NASDAQ:AMZN) seems like an entirely unwise prospect.

But for the home improvement market, don’t expect Home Depot (Home Depot Stock Quote, Chart NYSE:HD) to go down without a fight, says Cameron Hurst, chief investment officer at Equium Capital Management, who sees the company continuing to hang tough against the Amazon effect.

With its online platform, huge range of products and unchallenged network of third-party sellers, Amazon is the clear and fast winner when it comes to online retail. The company is projected to make up half of all online sales in the United States this year, giving it a huge lead over competitors such as Walmart which accounts for about four per cent of US online sales.

And while the home improvement sector has been traditionally seen as sheltered from Amazon — building products are tough to ship and professionals as well as DIY builders are thought to prefer the customer service model provided by companies like Home Depot and Lowe’s — Amazon is nonetheless seeing growth in the sector, reaching $6 billion in sales last year. (All figures in US dollars.)

This July, Home Depot announced plans to invest $1.2 billion over the next five years to beef up its supply chain and distribution segments, a move directly aimed at shoring up defenses against Amazon. Home Depot says it is looking to create 170 new distribution facilities across the US, providing for same-day or next-day delivery to about 90 per cent of the country.

It’s all part of the tenacity that’s long been a feature of the company, says Hurst.

“Home Depot is one of those companies that I love to love,” says Hurst to BNN Bloomberg. “They have been such a perennial out-performer again and again. Through cycles they hang in quite well. They know how to tweak the model a little bit when things get tough.”

Hurst maintains that the in-store experience you get from Home Depot will likely continue to be protective against Amazon.

“Fundamentally, you need to make sure that they’re getting the pro market right as opposed to the do-it-yourselfer because that is a huge component of it,” he says. “In that vein, there’s been some talk about Amazon coming in and dis-intermediating, but really, people and contractors in trades they like to go in, sort things out. It’s very tangible, it’s very hands-on. So, they’re in the right place, we don’t worry about the Amazon effect here.”

In August, Home Depot reported its second quarter earnings which beat expectations on both revenue (an eight per cent year-over-year increase to $30.46 billion versus the consensus $30.03 billion) and earnings per share ($3.05 versus the consensus $2.84).