Home Depot Earnings Preview: What We’re Watching
Home Depot (NYSE:HD) will release its latest earnings on Tuesday, providing an update on the overall trends in the home improvement retail sector and future business outlook. The Home Depot stock has gained more than 20% over the last three months. It is well on track to increase its sales by 2.5-3% for fiscal 2011 and has continued to outperform its closest competitor Lowe’s (NYSE:LOW) over the last few quarters.
Our complete analysis for Home Depot’s stock
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Home Depot is expected to have improved its sales by 2.5-3% during 2011, with comparable same store sales having grown between 2-3%. Last quarter, sales benefited from warmer-than-average weather that boosted outdoor projects sales, offset by reduced demand for seasonal items like heating and insulation. With indications of a stabilizing housing market and improvements in the home builders confidence, the sales to professional contractors (that account for more than 25% of Home Depot’s sales) are likely to have improved as well. The upcoming earnings will provide an update on the front.
Home Depot has exceeded analyst estimates over the last four quarters with earnings growing in double digits. Last quarter, the bottom-line is also expected to have benefited from cost-cutting initiatives, supply-chain improvements, upgraded technology and improved customer service.
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Stock Price Riding On Positive Sentiment
Signs of stabilizing housing market and improved private residential fixed investments have provided upside to the business outlook of home improvement retailers like Home Depot and Lowe’s and the Home Depot stock price has gained more than 20% over the last three months. Robust earnings with improved housing sentiment are expected to further help the stock.
We currently have a Trefis price estimate of $40 for Home Depot’s stock, at 15% discount to the current market price.
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