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Home Depot ahead of 4Q16: Why Investors Are Already Confident

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Feb. 14 2017, Published 8:19 p.m. ET

HD stock performance

Home Depot (HD) is the largest home improvement retailer in the world. It has 2,276 stores across the United States, Canada, and Mexico. It plans to announce its 4Q16 earnings on February 21, 2017, before the market opens.

The rise in housing prices, an improving US economy, and better-than-expected 3Q16 earnings seem to have led to a rise in Home Depot stock. As of February 13, 2017, the stock was trading at $139.87, which represents a rise of 9.6% since the announcement of its 3Q16 earnings.

The FHFA (Federal Housing Finance Agency) announced in November 2016 that the housing price index rose 1.5% in 3Q16. The rise in housing prices could encourage homeowners to remodel and upgrade their houses, which could boost sales for home improvement retailers.

In January 2017, the unemployment rate was 4.8%, and the average hourly labor wage was $26. In 3Q16, Home Depot posted EPS (earnings per share) of $1.60 on revenue of $23.2 billion. That compares to analysts’ EPS estimate of $1.58 on revenue of $23.1 billion.

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Year-to-date performance

It’s important to note that 2016 was a tough year for home improvement retailers. Home Depot returned 2.3% in 2016, but 2017 started on a brighter note. The company has returned 4.3% year-to-date. During the same period, its peers Lowe’s (LOW), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) returned 3.9%, -2.6%, and -1.2%, respectively.

Since the beginning of 2017, the SPDR S&P Homebuilders ETF (XHB), which is the broader comparative index, has returned 4.0%. XHB invests more than 19.0% of its holdings in home improvement retailers.

Series overview

In this series, we’ll see what you can expect from Home Depot’s upcoming 4Q16 earnings release. We’ll look at analysts’ estimates for revenue, same-store sales growth, margins, and EPS. We’ll also look at the company’s valuation multiples and its expected stock price over the next 12 months.

Let’s start by looking at Home Depot’s 4Q16 revenue.

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