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Why Analysts Are Optimistic about HD’s Earnings in the Next Year

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Analysts’ expectations

For the next four quarters, analysts are expecting Home Depot (HD) to post EPS (earnings per share) of $8.63, which represents a rise of 19.4% from its EPS of $7.23 in the corresponding four quarters of the previous year.

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EPS growth

Home Depot’s EPS growth is expected to be driven by its revenue growth, the expansion of its net margins, and its share repurchases. For the next four quarters, analysts expect the company’s net margins to improve from 8.7% in the corresponding four quarters of the previous year to 9.4%. The expansion is expected to be driven by a lower cost of sales and a fall in SG&A (selling, general, and administrative) expenses. HD’s cost of sales is expected to fall from 67.3% to 65.9%, while its SG&A expenses are expected to fall from 17.7% to 16.8%.

From the beginning of 4Q16 to the end of 3Q17, Home Depot has repurchased 56.2 million shares for $8.3 billion. The company’s management expects to buy back $2.1 billion worth of shares in 4Q17. Also, on December 6, 2017, the company announced a new share repurchase program worth $15 billion. Share repurchases lower the number of shares a company has outstanding, thus boosting the company’s earnings.

Peer comparisons

For the next four quarters, Lowe’s Companies (LOW), and Williams-Sonoma (WSM) are expected to post EPS rises of 19.3% and 7.4%, respectively, while Bed Bath & Beyond’s (BBBY) EPS are expected to fall 22.3%.

Next, we’ll look at analysts’ recommendations.

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