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How Much Upside Is Left in Home Depot Stock?

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Part 3
How Much Upside Is Left in Home Depot Stock? PART 3 OF 5

Home Depot’s Earnings Expectations for the Next 4 Quarters

EPS estimates

For the next four quarters, analysts are expecting Home Depot (HD) to post EPS (earnings per share) of $7.78, which represents an 11.8% rise from $6.96 in the corresponding four quarters of the previous year.

Home Depot&#8217;s Earnings Expectations for the Next 4 Quarters

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Before HD’s 2Q17 earnings release, analysts were expecting the company to post EPS of $7.68. The increase in revenue estimates and the rise in net margins could have compelled analysts to raise their EPS estimates.

EPS growth

EPS growth for Home Depot is expected to be driven by revenue growth, expansion of net margins, and share repurchases. For the next four quarters, analysts are expecting the company’s net margins to improve from 8.6% in the corresponding four quarters of the previous year to 8.8%. The expansion is anticipated to be driven by sales leverage, improvement in productivity due to the implementation of Supply Chain Sync, and lower SG&A (selling, general, and administrative) expenses. Analysts are expecting SG&A expenses to fall from 17.8% of the total revenue to 15.7%.

By the end of 2Q17, Home Depot had $3.2 billion under its share repurchase program. Share repurchases boost the company’s EPS by lowering the number of shares outstanding.

For 2017, Home Depot’s management has set its EPS guidance at $7.29, which represents a rise of 13.0% from $6.45 in 2016.

Peer comparisons

During the same period, analysts are expecting Williams-Sonoma (WSM), Lowe’s Companies (LOW), and Bed Bath & Beyond (BBBY) to post EPS growth of 5.5%, 10.6%, and -7.5%, respectively.

Next, we’ll look at Home Depot’s valuation multiple.

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