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Home Depot (HD) Pre-Q2 Earnings: Should You Buy, Sell or Hold?
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The Home Depot, Inc. (HD - Free Report) is set to report second-quarter fiscal 2024 results on Aug 13, before market open. Its top and bottom lines are expected to have declined year over year in the to-be-reported quarter.
The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings of $4.59 per share indicates a decline of 1.3% from the year-ago period’s reported figure. The consensus estimate has moved down by a penny in the past seven days. The consensus mark for quarterly revenues is pegged at $42.6 billion, indicating a decline of 0.8% from that reported in the year-ago quarter.
The Atlanta, GA-based company has been reporting steady earnings outcomes despite the softened demand environment. The company has delivered a positive bottom-line surprise trend in the trailing four quarters. In the last reported quarter, the company delivered an earnings surprise of 0.6%. The leading home improvement retailer delivered a trailing four-quarter average earnings surprise of 1.99%. Given its positive record, the question is, can HD maintain the momentum?
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Home Depot this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Home Depot’s second-quarter fiscal 2024 performance is expected to have been affected by soft consumer spending trends due to rising inflation, normalized transactions and continued investments to capture market share. The company has been witnessing broad-based pressure across its business, driven by softened demand, particularly for certain big-ticket discretionary categories, a trend that started in first-quarter fiscal 2024.
The deflation of core commodity categories, particularly in lumber and copper prices, has been affecting the top-line performance. Additionally, the company anticipates the high interest rate environment since the beginning of 2024 versus last year to persist and pressurize demand for larger projects.
We expect the soft demand for discretionary categories, commodity cost inflation and high interest rates to have continued in the fiscal second quarter, affecting its sales and comps performance. Our model predicts a comps decline of 1.4% for second-quarter fiscal 2024.
However, Home Depot’s performance in the second quarter of fiscal 2024 is likely to have benefited from several positive trends, including growth in the Pro and DIY customer categories, and digital momentum.
HD has been witnessing favorable trends and gaining a share of customers’ wallets, both in stores and online, through the expansion of its Pro Ecosystem. Driving sales growth with Pro customers has been its key focus area. On the last reported quarter’s earnings call, the company noted that Pro backlogs continued to be healthy and elevated relative to historical trends. Continued growth in the Pro business is likely to have aided the top line in the to-be-reported quarter.
Additionally, the execution of Home Depot’s “One Home Depot” strategy — focused on expanding the supply chain, enhancing technology and boosting digital capabilities — has shown significant benefits. The interconnected retail approach has consistently driven increased web traffic and improved online conversions, with around 50% of online orders fulfilled through stores. These ongoing trends are expected to have bolstered digital sales in the to-be-reported quarter.
Price Performance & Valuation
Home Depot’s shares have exhibited a downward trend, shedding as much as 1.2% in the year-to-date period. Specifically, the stock has declined against the broader industry and the Retail-Wholesale sector’s growth of 3% and 4.4%, respectively. Additionally, the HD stock has lagged the S&P 500 significantly, which rallied 10% in the same period.
Not only that, the Home Depot stock has underperformed its arch-rival Lowe’s Companies Inc.’s (LOW - Free Report) rally of 4.1% in the year-to-date period. Shares of competitors GMS Inc. (GMS - Free Report) and Tecnoglass (TGLS - Free Report) recorded gains of 3.9% and 4.2%, respectively, in the same period.
Image Source: Zacks Investment Research
At the current price of $342.40, HD trades close to the 52-week high of $396.87 touched on Mar 21. This represents a 13.7% discount to the 52-week high mark.
Despite this recent downturn, HD’s valuation appears quite pricey. The company trades at a forward 12-month P/E multiple of 21.76X, exceeding the industry average of 20.26X and the S&P 500’s average of 20.33X.
Image Source: Zacks Investment Research
Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The retail market is becoming increasingly competitive and Home Depot’s initiatives may not suffice to drive significant growth. Macroeconomic challenges and heightened competition could impede the company's ability to sustain its current growth trajectory.
Investment Thesis
Home Depot has consistently achieved revenue growth and strong profitability by focusing on creating an exceptional interconnected experience, expanding its Pro customer wallet share through a unique set of capabilities, and building stores. The company’s readiness at the store level, well-curated product assortment, and high associate engagement have been crucial in driving market share growth, even in the face of recent demand softness. Additionally, Home Depot benefits from a competitive advantage as part of a duopoly, primarily competing with Lowe’s in the home improvement retail sector.
Delivering the best shopping experience for every purchase occasion is vital to Home Depot’s success. A key growth opportunity lies in increasing its share of wallet with Pro customers and excelling in serving those working on complex projects. As a result, the company has made significant investments in its Pro sales teams and capabilities.
While Home Depot’s strong financial performance and strategic initiatives provide a solid foundation for growth, the company’s reliance on the housing market, which has recently shown signs of weakness, has been concerning. Current trends indicate sluggish home sales, elevated prices and high mortgage rates, contributing to the volatility in Home Depot’s stock price. Additionally, inflationary pressures, especially lumber prices, have impacted its financial performance in recent quarters.
Conclusion
With Home Depot set to announce its second-quarter fiscal 2025 results, investors might wonder whether it is the right time to buy the stock. The company's strong market position, coupled with strategic initiatives like the "One Home Depot" plan and robust Pro customer growth, offers a promising outlook. However, potential challenges, such as rising interest rates, high lumber prices, and broader economic pressures in the home improvement industry, are factors that should be carefully considered. Evaluating these elements before the earnings release could provide a clearer picture for making an informed investment decision.
While Home Depot shows long-term potential, investors should avoid making quick decisions. Monitoring developments to identify the optimal entry point is a prudent strategy, as rushing in could affect portfolio gains. If you already hold Home Depot stock, it may be wise to maintain your position, as the upcoming earnings report is expected to reaffirm the company's strong performance.
Image: Bigstock
Home Depot (HD) Pre-Q2 Earnings: Should You Buy, Sell or Hold?
The Home Depot, Inc. (HD - Free Report) is set to report second-quarter fiscal 2024 results on Aug 13, before market open. Its top and bottom lines are expected to have declined year over year in the to-be-reported quarter.
The Zacks Consensus Estimate for the company’s fiscal second-quarter earnings of $4.59 per share indicates a decline of 1.3% from the year-ago period’s reported figure. The consensus estimate has moved down by a penny in the past seven days. The consensus mark for quarterly revenues is pegged at $42.6 billion, indicating a decline of 0.8% from that reported in the year-ago quarter.
The Home Depot, Inc. Price and EPS Surprise
The Home Depot, Inc. price-eps-surprise | The Home Depot, Inc. Quote
The Atlanta, GA-based company has been reporting steady earnings outcomes despite the softened demand environment. The company has delivered a positive bottom-line surprise trend in the trailing four quarters. In the last reported quarter, the company delivered an earnings surprise of 0.6%. The leading home improvement retailer delivered a trailing four-quarter average earnings surprise of 1.99%. Given its positive record, the question is, can HD maintain the momentum?
Image Source: Zacks Investment Research
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Home Depot this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Home Depot has an Earnings ESP of -0.17% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Key Factors to Note
Home Depot’s second-quarter fiscal 2024 performance is expected to have been affected by soft consumer spending trends due to rising inflation, normalized transactions and continued investments to capture market share. The company has been witnessing broad-based pressure across its business, driven by softened demand, particularly for certain big-ticket discretionary categories, a trend that started in first-quarter fiscal 2024.
The deflation of core commodity categories, particularly in lumber and copper prices, has been affecting the top-line performance. Additionally, the company anticipates the high interest rate environment since the beginning of 2024 versus last year to persist and pressurize demand for larger projects.
We expect the soft demand for discretionary categories, commodity cost inflation and high interest rates to have continued in the fiscal second quarter, affecting its sales and comps performance. Our model predicts a comps decline of 1.4% for second-quarter fiscal 2024.
However, Home Depot’s performance in the second quarter of fiscal 2024 is likely to have benefited from several positive trends, including growth in the Pro and DIY customer categories, and digital momentum.
HD has been witnessing favorable trends and gaining a share of customers’ wallets, both in stores and online, through the expansion of its Pro Ecosystem. Driving sales growth with Pro customers has been its key focus area. On the last reported quarter’s earnings call, the company noted that Pro backlogs continued to be healthy and elevated relative to historical trends. Continued growth in the Pro business is likely to have aided the top line in the to-be-reported quarter.
Additionally, the execution of Home Depot’s “One Home Depot” strategy — focused on expanding the supply chain, enhancing technology and boosting digital capabilities — has shown significant benefits. The interconnected retail approach has consistently driven increased web traffic and improved online conversions, with around 50% of online orders fulfilled through stores. These ongoing trends are expected to have bolstered digital sales in the to-be-reported quarter.
Price Performance & Valuation
Home Depot’s shares have exhibited a downward trend, shedding as much as 1.2% in the year-to-date period. Specifically, the stock has declined against the broader industry and the Retail-Wholesale sector’s growth of 3% and 4.4%, respectively. Additionally, the HD stock has lagged the S&P 500 significantly, which rallied 10% in the same period.
Not only that, the Home Depot stock has underperformed its arch-rival Lowe’s Companies Inc.’s (LOW - Free Report) rally of 4.1% in the year-to-date period. Shares of competitors GMS Inc. (GMS - Free Report) and Tecnoglass (TGLS - Free Report) recorded gains of 3.9% and 4.2%, respectively, in the same period.
Image Source: Zacks Investment Research
At the current price of $342.40, HD trades close to the 52-week high of $396.87 touched on Mar 21. This represents a 13.7% discount to the 52-week high mark.
Despite this recent downturn, HD’s valuation appears quite pricey. The company trades at a forward 12-month P/E multiple of 21.76X, exceeding the industry average of 20.26X and the S&P 500’s average of 20.33X.
Image Source: Zacks Investment Research
Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The retail market is becoming increasingly competitive and Home Depot’s initiatives may not suffice to drive significant growth. Macroeconomic challenges and heightened competition could impede the company's ability to sustain its current growth trajectory.
Investment Thesis
Home Depot has consistently achieved revenue growth and strong profitability by focusing on creating an exceptional interconnected experience, expanding its Pro customer wallet share through a unique set of capabilities, and building stores. The company’s readiness at the store level, well-curated product assortment, and high associate engagement have been crucial in driving market share growth, even in the face of recent demand softness. Additionally, Home Depot benefits from a competitive advantage as part of a duopoly, primarily competing with Lowe’s in the home improvement retail sector.
Delivering the best shopping experience for every purchase occasion is vital to Home Depot’s success. A key growth opportunity lies in increasing its share of wallet with Pro customers and excelling in serving those working on complex projects. As a result, the company has made significant investments in its Pro sales teams and capabilities.
While Home Depot’s strong financial performance and strategic initiatives provide a solid foundation for growth, the company’s reliance on the housing market, which has recently shown signs of weakness, has been concerning. Current trends indicate sluggish home sales, elevated prices and high mortgage rates, contributing to the volatility in Home Depot’s stock price. Additionally, inflationary pressures, especially lumber prices, have impacted its financial performance in recent quarters.
Conclusion
With Home Depot set to announce its second-quarter fiscal 2025 results, investors might wonder whether it is the right time to buy the stock. The company's strong market position, coupled with strategic initiatives like the "One Home Depot" plan and robust Pro customer growth, offers a promising outlook. However, potential challenges, such as rising interest rates, high lumber prices, and broader economic pressures in the home improvement industry, are factors that should be carefully considered. Evaluating these elements before the earnings release could provide a clearer picture for making an informed investment decision.
While Home Depot shows long-term potential, investors should avoid making quick decisions. Monitoring developments to identify the optimal entry point is a prudent strategy, as rushing in could affect portfolio gains. If you already hold Home Depot stock, it may be wise to maintain your position, as the upcoming earnings report is expected to reaffirm the company's strong performance.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.