Why Home Depot Stock Edged Higher on Tuesday

On Tuesday, investors continued to digest Monday's news from Home Depot (NYSE: HD) that it had made a fresh acquisition. Meanwhile, several analysts felt compelled to issue updates on the stock, and these tended to be bullish. At the end of Tuesday's trading session, the company's share price was up by nearly 2% on a day when the S&P 500 index dipped by 0.1%.

Shopping for large assets

Home Depot kicked off the business week by announcing that it had acquired specialty building products distributor GMS via a subsidiary. The price is $110 per share in cash, valuing the equity at around $4.3 billion.

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Home Depot stated that the purchase will be financed through a mix of cash on hand and debt. The company said that taking on borrowings for it should not affect its goal to return to a leverage ratio of 2 by the end of its fiscal 2026. It added that owning GMS would be accretive to its non-GAAP (adjusted) per share earnings in the first year following the closing of the deal (which is expected by the end of the current fiscal year).

Among the Home Depot watchers cheering the deal was Truist Securities' Scot Ciccarelli, who reiterated his buy recommendation on the company's stock and $417 price target.

According to reports, Ciccarelli wrote that this is an effective move by the retailer to capture market share in the professional construction and home renovation space. He added that the buy is easily affordable with Home Depot's resources.

A good deal

The GMS deal seems sensible to me, too, as the professional segment is a large and important one for Home Depot -- not least because such customers (ideally) shop frequently and tend to have higher budgets than more casual consumers. If I were a Home Depot shareholder, I'd be pleased with this move.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.