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Why Home Depot’s Strong 1Q17 Earnings Failed to Impress Investors

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1Q17 performance

The world’s largest home improvement retailer, Home Depot (HD), posted its 1Q17 earnings on May 16, 2017. The company posted adjusted EPS (earnings per share) of $1.67 on revenue of $23.9 billion.

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Stock performance

Analysts were expecting HD to post EPS of $1.62 on revenue of $23.7 billion. After posting strong 1Q17 earnings, the company’s management raised its EPS guidance for 2017 to $7.15 from $7.13. Despite Home Depot’s posting better-than-expected sales and earnings, its stock price fell due to political turmoil in Washington, which led to weakness in the broader equity market.

This turmoil has cast doubt on whether US President Donald Trump will be able to push forward his pro-business agenda. On May 17, 2017, Home Depot stock was trading at $156.09, a fall of 0.8% since the announcement of its 1Q17 earnings.

Year-to-date performance

Since the beginning of 2017, HD’s stock price has risen 16.4%. During the same period, peers Lowe’s Companies (LOW), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) have returned 17.8%, 3.5%, and -12.6%, respectively, year-to-date (or YTD).

Comparatively, the S&P 500 INDEX (SPX), and the Consumer Discretionary Select Sector SPDR ETF (XLY) have returned 5.3% and 8.3%, respectively, YTD. XLY has invested 10.5% of its portfolio in home improvement companies.

Series overview

In this series, we’ll discuss Home Depot’s 1Q17 performance and look at its 1Q17 earnings call and notes. We’ll also look at management’s guidance for 2017 and analysts’ estimates for the next four quarters. We’ll wrap up by looking at the company’s valuation multiple and analyst recommendations.

First, let’s start by looking at Home Depot’s 1Q17 revenue.

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