What To Expect From Home Depot’s Stock After Earnings?

HD: Home Depot logo
Home Depot

Home Depot (NYSE: HD) is scheduled to report its fiscal first-quarter results on Tuesday, May 18. We expect the company’s revenues to likely be in-line while earnings beat consensus estimates. The home improvement leader has seen revenue and net income grow by double digits as millions of homeowners have found themselves spending substantially more time in their homes in 2020. The home improvement retailer has invested quickly and heavily to build out its digital capabilities to accommodate this demand surge during the pandemic. In fact, these capabilities could bring in customers even after the pandemic has run its course. Certainly, sales will not continue to grow at 20+% levels as seen in 2020, but the company will likely continue to benefit from its ongoing One Home Depot strategy and the acquisition of HD Supply going forward. Our forecast indicates that Home Depot’s valuation is $333 a share, which is slightly higher than the current market price of around $325. Look at our interactive dashboard analysis on Home Depot’s Pre-Earnings: What To Expect in Q1? for more details.

(1) Revenues expected to be in line with the consensus estimates

Trefis estimates Home Depot’s Q1 2021 revenues to be around $34.7 Bil, almost in line with the consensus estimate of $34.6 Bil. Home Depot saw record sales growth in 2020 as it added over $21 billion year-over-year to its sales base and booked soaring profits through the year. In addition, the company also reported a strong comparable sales growth of 19.7% in fiscal 2020. This compares to sales growth of only 3.5% in fiscal 2019. Particularly, the company saw a 10.5% increase in comparable average tickets and an 8.6% increase in comparable customer transactions during 2020, and we expect this trend to continue in fiscal Q1 as well. That said, the increase in remote working may be longer-lasting, which will allow the company to serve those customers looking to build and maintain a home office beyond the pandemic. In addition, as a consequence of the pandemic, more people are deciding that owning a home is a better bargain than renting an apartment – which means more business for home improvement retailers.

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2) EPS to be likely ahead of consensus estimates

Home Depot’s Q1 2021 earnings per share (EPS) is expected to be $3.10 per Trefis analysis, 2% higher than the consensus estimate of $3.03. Despite revenues growing substantially, the company’s operating margin of 13.8% in 2020 came in lower than the previous year’s 14.4%, due to higher safety, labor, and supply chain costs related to Covid-19. However, the company’s operating income grew 15% y-o-y during this period. In addition, Home Depot generated $12.8 billion of net income in 2020, compared to $11.2 billion in the prior-year period. It should also be noted that the retailer’s digital sales increased by approximately 86% with customers picking up 62% of those orders in-store for the year. This indicates that the company is able to save major costs of shipping items to the customer’s homes in pick-up orders, consequently passing on these savings to its bottom line.

For the full year, we expect Home Depot’s net margin to grow 50 basis points from 9.7% in 2020 to 10.2% in 2021. This coupled with a 3.5% y-o-y growth in Home Depot revenues, could lead to a rise of $1 billion y-o-y in net income to $13.9 billion in 2021. All this, resulting in a possible EPS increase from $11.92 in 2020 to around $12.89 in 2021.

(3) Stock price estimate slightly higher than the current market price

Going by our Home Depot’s Valuation, with an EPS estimate of around $12.89 and P/E multiple of 25.8x in fiscal 2021, this translates into a price of 333, which is marginally ahead of the current market price.

For further comparison among peer groups, it is helpful to see how they stack up. HD Stock Comparison With Peers shows how Home Depot compares against peers on metrics that matter.

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