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Why Analysts Expect Home Depot’s EPS Growth to Slow

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Analysts’ EPS expectations

Home Depot’s (HD) adjusted EPS grew 32.0% YoY (year-over-year) to $7.64 from $5.79 in last year’s first three quarters, driven by revenue growth, net margin expansion, and share repurchases. Its net margin expanded YoY from 8.9% to 10.7%, driven by gross margin expansion, lower D&A (depreciation and amortization) expenses, and a lower effective tax rate. In those three quarters, Home Depot repurchased 26.1 million shares for $2.50 billion, and by the end of third quarter, the company had ~$4.5 billion under its share repurchase program.

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Home Depot’s adjusted EPS are expected to be $2.16 in the fourth quarter, raising its total EPS for the year by 31.4% YoY, to $9.80 from $7.46. In comparison, Lowe’s (LOW), Williams-Sonoma’s (WSM), and Bed Bath & Beyond’s (BBBY) EPS are expected to have grown 16.5%, 20.1%, and -36.3%, in 2018, respectively.

Analysts’ 2019 EPS expectations

Home Depot’s EPS are expected to grow 4.9% YoY to $10.28 this year from $9.80, driven by revenue growth and share repurchases and partially offset by net margin contraction. Analysts expect Home Depot’s net margins to contract YoY to 10.2% from 10.4% due to higher D&A expenses and effective tax offset by gross margin expansion and lower selling, general, and administrative expenses. In comparison, Lowe’s, Williams-Sonoma’s, and Bed Bath & Beyond’s EPS are expected to grow 18.2%, 2.8%, and -10.9%, respectively, in 2019.

Dividend yield

On November 15, Home Depot announced quarterly dividends of $1.03 per share, which were paid on December 13 to shareholders on record as of November 29. The dividends were paid at an annualized rate of $4.12. As of January 11, the company’s dividend yield was 2.30%, and its stock price was $179.41. On the same day, Lowe’s, Williams-Sonoma’s, and Bed Bath & Beyond’s dividend yields were 1.97%, 3.26%, and 4.20%, respectively.

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