Home Depot Stock To See Little Movement Past Q2

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Trefis
HD: Home Depot logo
HD
Home Depot

Home Depot (NYSE: HD) is scheduled to report its fiscal second.-quarter results on Tuesday, August 15. We expect the company’s stock to likely see little movement due to its revenues and earnings almost matching the market expectations. The Federal Reserve has aggressively raised interest rates since 2022 to fight inflation. Consequently, this has translated to higher mortgage rates, suppressing home sales last year. But even with interest rates still high (6.81% in July’s first week compared to 6.4% in March 2023 and only 4.5% in April 2022 last year), home prices are now gaining again. Home prices grew 0.1% year-over-year (y-o-y) in May 2023. It is worth mentioning that HD, with more than 2300 locations, generates more sales from professional contractors than its rival Lowe’s does, and that diversity is a big win for the company in the long term.

Our forecast indicates that Home Depot’s valuation is $317 per share, which is almost in line with the current market price. Look at our interactive dashboard analysis on Home Depot’s Earnings Preview: What To Expect in Q2? for more details.

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(1) Revenues expected to match the consensus estimates

Trefis estimates Home Depot’s Q2 2023 revenues to be around $36.1Bil, slightly above the consensus estimate of $34.9 Bil. In Q1, Home Depot’s revenues fell 4% year-over-year (y-o-y) to $37.3 billion. Its total comparable-store sales were down 4.5% in Q1 2023. The retailer noted that extreme weather in parts of the country delayed the start of spring seasonal sales. To add to this, the chain’s customer traffic was also down 5%, marking no major improvement over trends in late 2022. We now forecast Home Depot Revenues to be $152.7 billion for the full year 2023, down 3% y-o-y.

Home Depot expects comps to drop by between 2% and 5% this year compared to its prior forecast of flat results. Profitability will decline slightly, and earnings per share will fall by as much as 13% after soaring during most of the past three years. Falling lumber prices and softening demand looks like the major reasons for the downgrade.

2) EPS to likely come in line with consensus estimates 

Home Depot’s Q2 2023 earnings per share (EPS) is expected to be $4.44 per Trefis analysis, almost in line with the consensus estimate of $4.45.  In Q1, the company’s net income was down 8% y-o-y to $3.9 billion with EPS coming in at $3.83.

(3) Stock price estimate similar to the current market price

Going by our Home Depot Valuation, with an EPS estimate of around $15.01 and a P/E multiple of 21.1x in fiscal 2023, this translates into a price of 317, which is only 4% lower than the current market price.

It is helpful to see how its peers stack up. HD Peers shows how Home Depot compares against peers on metrics that matter. You will find other useful comparisons for companies across industries at Peer Comparisons.

We don’t expect much return from HD stock right now. But what if you’re looking for a high-performance portfolio with a low downside instead? The Trefis Reinforced Value portfolio has beaten the market consistently while limiting losses during periods of sharp market declines.

Returns Aug 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 HD Return -1% 4% 146%
 S&P 500 Return -3% 16% 100%
 Trefis Multi-Strategy Portfolio -6% 21% 290%

[1] Month-to-date and year-to-date as of 8/11/2023
[2] Cumulative total returns since the end of 2016

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