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Home Depot HD, the largest home improvement retailer in terms of revenue will report its Q3 earnings on Tuesday, November 15. Trading 25% from its high of $420.61 last December, investors are intrigued to see when Home Depot will start to turn things around.
Quick Glance
Home Depot offers a diverse range of branded and proprietary home improvement items, building materials, lawn and garden products, décor products, and related services. The company has operations throughout the U.S., Canada, and Mexico with over 500,000 employees.
With such a large workforce and inflation certainly adding to higher operating and overhead costs, Home Depot has not been immune to challenges in the economy. HD stock has mirrored the broader market’s decline this year. This makes the company’s Q3 earnings report important for a long-term rebound in HD Stock.
HD has beaten EPS expectations for nine consecutive quarters and Wall Street will want to see this trend continue despite a tougher economic environment.
Q3 Outlook
The Zacks Consensus Estimate for HD’s third quarter earnings is $4.11 per share, which would represent a 5% increase from the prior-year quarter. Earnings estimates for the period are up from $4.06 at the beginning of the quarter. Sales for Q3 are expected to be up 3% at $37.93 billion.
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Year over year, HD earnings are expected to be up 7% and rise another 4% in FY24 at $17.35 per share. Top line growth is expected, with sales projected to be up 3% in fiscal 2023 and rise another 2% in FY24 to $160.02 billion. This would represent 45% growth from its pre-pandemic revenue with sales at $110.2 billion in 2019. The company has grown at a 19% growth rate over the last five years.
Performance & Valuation
Year to date HD is down -24% to slightly underperform the S&P 500’s -18% decline. This has also lagged behind its peer group’s -11% which includes notable competitors Lowe’s LOW and Builders FirstSource BLDR. In comparison, Lowe’s stock is down -19% YTD.
Over the last decade, HD is still up an impressive +534% when including its solid dividend to crush the benchmark and its peer group’s +168%. Home Depot’s long-term outperformance, coupled with its continued growth, is why investors might be intrigued at the possibility of utilizing HD’s 2022 fall as a long-term buying opportunity.
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Trading around $315 a share, HD has a P/E of 18.7X. This is much higher than the industry average of 8.2X but Home Depot is a leader in its industry. HD trades near the benchmark’s 18.1X even though its total return performance has been significantly better over the past decade. Even better, HD trades below its decade-high of 28.1X and the median of 21.3X.
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Bottom Line
Home Depot currently lands a Zacks Rank #3 (Hold) and its Building Products-Retail Industry is in the top 22%. Although the company’s YoY growth is slowing amid broader economic challenges, HD’s top and bottom lines have grown significantly since the pandemic.
HD is trading attractively relative to its past and its overall performance has been stellar over the last decade. Patient investors may be rewarded for holding the stock as HD offers a strong 2.44% annual dividend yield at $7.60 per share and the Average Zacks Price Target also suggests 15% upside from current levels.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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