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Home Depot Earnings Preview: Will It Take A Hit From The Weather Too?

Home Depot Earnings Preview: Will It Take A Hit From The Weather Too?
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Home Depot (NYSE: HD), which many analysts and investors look to as a key sign of the state of the housing recovery, is scheduled to report its fiscal first-quarter results Tuesday, May 20, before the markets open.

As with many other first-quarter reports, weather will no doubt be a factor in Home Depot's earnings in the period as well. And investors will be keeping an eye on the strategy to shift away from growth through opening new stores to a focus on e-commerce, as well as for an update on shares repurchased.

See also: Home Depot CEO Talks About Recovery, The Weather And Online Sales


Analysts on average predict that Home Depot will report that its revenue for the quarter increased year-over-year from $19.12 billion to $19.95 billion. Earnings of $0.99 per share are also in the consensus forecast. That would be a rise from a reported profit of $0.83 per share in the comparable period of last year.

Note that the consensus earnings per share (EPS) estimate has slipped over the past 60 days from $1.01. However, the company has not fallen short of analysts' EPS expectations in the past four quarters. The beat in the fourth quarter was by two cents per share, or less than three percent.

Home Depot attributed fourth-quarter results in part to its strongest same-store sales growth in 14 years. It also projected opening seven new stores this year, and it raised its dividend by 21 percent. The share price rose more than five percent in the days following the fourth-quarter report.

Looking ahead, the EPS forecast for the current quarter so far calls for sequential and year-over-year growth on both the top and bottom lines. That consensus EPS estimate is unchanged from 60 days ago. Full-year EPS is expected to be up about 15 percent on revenue that is almost five percent higher than a year ago.

The Company

Home Depot is the largest specialty retailer of home-improvement products in the world. Its more than 2,200 stores sell building materials and lawn and garden products and provide installation and service programs to do-it-yourselfers and professional customers. It also sells its products online.

The company was founded in 1978, and its headquarters are in Atlanta. It is a component of the S&P 500 and the Dow Jones Industrial Average, and it has a market capitalization of almost $107 billion. Francis Blake has been executive chairman and chief executive officer since January 2007.

Its main rival is Lowe's Companies (NYSE: LOW), but it also competes with the likes of privately held Menard's and True Value. Lowe's is also scheduled to share its results this week, and analysts are looking for EPS that are more than 18 percent higher on revenue that is up nearly six percent, relative to a year ago.

During the three months that ended in April, Home Depot announced 80,000 new hires for spring, launched its Black Friday for Spring campaign, appointed a new president of U.S. Retail (a rumored CEO successor), raised its dividend and was featured positively in Barron's.

See also: Barron's Recap: Sunny Skies For Home Depot


Home Depot has a long-term earnings per share growth forecast of about 17 percent. Its price-to-earnings (P/E) ratio of 20.6 is less than that of Lowe's. Home Depot's operating margin also is greater than that of its rival, and it has a return on equity of almost 37 percent. Its dividend yield is near 2.4 percent.

The number of Home Depot shares sold short, as of the most recent settlement date, represented less than one percent of the total float. That is down about 46 percent from a year-to-date peak in mid-March. At the current average daily volume, it would take less than two days to close out all short positions.

Of the 27 analysts surveyed by Thomson/First Call who follow the stock, nine rate it at Strong Buy and another 10 also recommend buying shares. A move to the mean price target would represent a gain of more than 13 percent for shareholders. That consensus target would be a new multiyear high.

At the close on Friday, shares had pulled back more than five percent year to date. The share price is below the 50-day and 200-day moving averages. Over the past six months, the stock has underperformed the broader markets but outperformed Lowe's. Its performance has been in line with that of Wal-Mart.

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

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


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