Can Home Depot Maintain Its Upward Momentum?



Stock performance

Home Depot (HD) is scheduled to announce its fourth-quarter earnings before the market opens on February 26. As of February 20, the company was trading at $191.85, which represents a rise of 6.9% since the announcement of its third-quarter earnings on November 13.

In the third quarter, Home Depot outperformed analysts’ EPS and revenue expectations. The company also beat analysts’ SSSG (same-store sales growth) estimate of 4.7% with actual SSSG of 4.8%. After posting its third-quarter earnings, Home Depot’s management raised its sales and EPS guidance for fiscal 2018.

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Despite posting strong third-quarter earnings, the company’s stock fell to a low of $158.09 on December 24 as investors grew skeptical about increased interest rates and the weak housing market. However, since then, the company’s stock price has risen by 21.4%. The surge in job growth in January and February, wage inflation, and the Fed toning down its aggressive rate hike stance appears to have increased investors’ confidence, boosting the company’s stock price.

Year-to-date performance

After losing 9.3% of its stock value in 2018, Home Depot has started 2019 on a brighter note. The company has returned 11.7% YTD as of the February 20 closing price. During the same period, peers Lowe’s (LOW), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) have returned 14.4%, 11.9%, and 49.2%, respectively. The SPDR S&P Homebuilders ETF (XHB), which invests 22.5% of its holdings in home improvement and furnishing companies, has returned 19.3% YTD.

Series overview

With Home Depot’s fourth-quarter earnings around the corner, we’ll look at analysts’ revenue and EPS expectations for the quarter in this series. We’ll also cover the management’s guidance for 2018. Finally, we’ll end this series by looking at analysts’ recommendations and Home Depot’s valuation multiple. First, let’s look at analysts’ revenue expectations.


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