Market Overview

Home Depot Earnings Preview: Keeping Ahead Of Lowe's?

Home Depot (NYSE: HD), shares of which saw a nice six percent pop in the past week, is scheduled to share its fiscal third-quarter results Tuesday, November 19, before the opening bell.

Investors will have fingers crossed that the rebound in the real estate market continues to buoy the company earnings. They will also have an eye on same-store sales, as the gap between those from Home Depot and competitor Lowe's Companies (NYSE: LOW) narrowed in the previous quarter.

Expectations

Analysts on average predict that Home Depot will say its revenue for the quarter rose more than five percent year-over-year to $19.17 billion. Earnings of $0.89 per share are also in the consensus forecast. That would compare to a reported profit of $0.74 per share in the same period of last year.

Note that the consensus earnings per share (EPS) estimate has slipped from $0.90 in the past 60 days. And also that Home Depot narrowly topped consensus EPS estimates in the previous four quarters. The second quarter beat was by two cents per share.

In the second-quarter report, the company said: "There were four key factors that drove our performance: strong summer events, a recovering seasonal business, commodity inflation and strength across the remainder of the store." Home Depot raised its guidance, but the share price pulled back a bit following the report.

See also: Home Depot Reports Solid Numbers But Stock Sells Off

Looking ahead to the current quarter, which includes the holiday shopping period, the forecast currently calls for sequential and year-over-year growth of EPS but with declining revenues. That consensus EPS estimate is unchanged from 60 days ago. The full fiscal year forecast calls for EPS up more than 16 percent and revenue more than five percent higher than a year ago.

The Company

The Home Depot is a home improvement retailer that operates more than 2,200 stores in North America and Guam. The company also provides installation, home maintenance and professional services, and it serves home owners, professional remodelers, general contractors, repairmen, small business owners and tradesmen.

This S&P 500 component was founded in 1978, and its headquarters are in Atlanta. It now has a market capitalization of more than $114 billion. Francis S. Blake has been executive chairman and chief executive officer of the company since January of 2007.

Competitors include Lowe's, as mentioned above, as well as privately held Menard and True Value. Lowe's is scheduled to share its quarterly results Wednesday morning. Analysts are looking for year-over-year earnings and revenue growth in the same ballpark as Home Depot.

During the three months that ended in October, Home Depot named a new director to the board, cut benefits for part-time workers, expanded its online handyman referral service Redbeacon and saw its credit rating raised by Standard & Poor's.

See also: J.P. Morgan Opens Itself Up To Ridicule With Hashtag

Performance

Home Depot has a long-term earnings per share growth forecast of around 16 percent. Its return on equity is more than 29 percent. The operating margin is greater than that of Lowe's, and the price-to-earnings (P/E) ratio is less. Its dividend yield near 2.1 percent is more generous than Lowe's as well.

The number of Home Depot shares sold short, as of the October 31 settlement date, represents about one percent of the total float. That was less than half the number of shares short back in June. It would take less than two days to close out all of the short positions.

For at least three months, the consensus recommendation of analysts surveyed by Thomson/First Call who follow the stock has been to buy shares. The analysts' mean price target, or where they expect the stock to go, is less than seven percent higher than the current share price. That would be a new multiyear high, though.

While the share price is about 26 percent higher year to date, shares have traded mostly between $74 and $80 since May. The share price is currently above the 50-day and 200-day moving averages. Over the past six months, Home Depot has outperformed Lowe's and the S&P 500.

At the time of this writing, the author had no position in the mentioned equities.

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Posted-In: home depot Lowe's RedbeaconEarnings News Previews Trading Ideas Best of Benzinga

 

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