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Why Investors Are Optimistic about Home Depot's 3Q17 Earnings

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Part 3
Why Investors Are Optimistic about Home Depot's 3Q17 Earnings PART 3 OF 5

Will Home Depot’s Earnings Beat Analysts’ Estimates in 3Q17?

3Q17 estimates

In 3Q17, analysts are expecting Home Depot (HD) to post EPS (earning per share) of $1.82, which represents growth of 13.8% from $1.60 in fiscal 3Q16. The EPS growth is expected to be driven by revenue growth, expansion of net margins, and share repurchases.

Will Home Depot&#8217;s Earnings Beat Analysts&#8217; Estimates in 3Q17?

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Analysts are expecting HD’s net margins to improve from 8.5% in 3Q16 to 8.7% due to lower SG&A (selling, general, and administrative) expenses, and sales leverage from positive SSSG (same-store sales growth). Since the beginning of 4Q16 until the end of 2Q17, the company has repurchased 43.9 million shares for $6.2 billion. Share repurchases reduce the number of shares outstanding, thus boosting the company’s EPS. The above graph shows that Home Depot has outperformed analysts’ EPS estimates in the last four quarters.

Peer comparisons and outlook

During the same period, analysts are expecting Lowe’s Companies (LOW) and Williams-Sonoma (WSM) to post EPS growth of 16.0% and 6.2%, respectively, while the EPS of Bed Bath & Beyond (BBBY) could fall 56.3%.

Home Depot’s management has set its EPS guidance to be at $7.29 for 2017, which represents growth of 13.0% from $6.45 in 2016. For the next four quarters, analysts are expecting the company to post EPS of $7.80, which represents growth of 12.1% from $6.96 in the corresponding four quarters of the previous year.

Dividends

In 2Q17, Home Depot paid dividends of $0.89 at a yield of 2.2% and a payout ratio of 48.6%. Analysts are expecting the company to pay dividends of $0.86 in each of the next two quarters to take the total to $3.50 for 2017, which represents growth of 26.8% from $2.76 in 2016.

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

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