Home Depot’s Earnings: Home Improvement Spending In Focus

-2.10%
Downside
384
Market
376
Trefis
HD: Home Depot logo
HD
Home Depot

Home Depot (NYSE:HD) will release its latest earnings on May 15 and will provide an update on the overall trends in the home improvement retail sector and its own business outlook. It posted a healthy 6% sales growth last quarter with bumper holiday and warmer winter sales, but remained cautious on the overall home improvement retail market recovery. It largely expects its growth to follow or modestly lead U.S’s overall G.D.P growth this year. The recent signs of stabilizing housing market and the improvement in private residential fixed investments after several quarters of subdued sales have also provided an upside to the business outlook of home improvement retailers Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW), leading to a significant increase in their stock prices.

Our complete analysis for Home Depot’s stock

Last quarter, Home Depot posted a healthy sales growth of 6% supported by bumper holiday and warmer winter sales, but remained cautious on the overall home improvement retail market recovery despite some signs of stabilizing housing market and increasing private residential fixed investments (PRFI). It noted some steady recovery in the hardest hit housing markets, particularly in Florida and California. However, anticipating no near-term policy trigger in the housing sector, Home Depot’s business outlook for 2012 relies on further strengthening of basic maintenance, repair and remodeling needs of its 130 million aging homes customer base.

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This year the home improvement retailer expects sales to follow or modestly lead the overall U.S. GDP growth and recovery with favorable weather conditions and a refresh cycle for home remodeling. Instead of more square footage growth, it targets continued improvement in same store sales and maximization of productivity through its existing stores and modest margin improvements with focus on customer service and improved supply chain structure.

Growth in private-residential spending is highly correlated with comparable store sales for U.S. home-improvement retailers and the recent up-trends are likely to support further same store sales growth for Home Depot. In 2011, the company’s sales rose 3.5% from fiscal 2010 with a 3% growth in same store sales.

We have a Trefis price estimate of $40 for Home Depot’s stock, implying a 25% discount to the current market price.

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