Home Depot’s Stock Fell Due to Weaker Outlook



Fourth-quarter performance

Home Depot (HD) posted its fourth-quarter results on February 26. For the quarter ending on February 3, the company posted an EPS of $2.09 on revenues of $26.49 billion. However, removing the negative impact of $0.16 from the impairment charges during the quarter, the company’s adjusted EPS was $2.25. The company’s revenues rose 10.9% YoY (year-over-year), while its adjusted EPS rose 33.1%.

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Stock performance

During the fourth quarter, Home Depot beat analysts’ EPS expectation of $2.16. The company’s revenues fell short of analysts’ expectation of $26.57 billion. The company’s SSSG (same-store sales growth) for the fourth quarter was 3.2%, which didn’t meet analysts’ expectation of 4.5%. The company’s management blamed unfavorable weather conditions during the quarter for weak sales.

For 2019, Home Depot’s management has set an EPS guidance of $10.03, which was lower than analysts’ expectation of $10.26. Weak fourth-quarter sales and the lower-than-expected 2019 EPS guidance provided by the company’s management might have led to a fall in the company’s stock price. By the end of February 26, Home Depot was trading at $188.30, which represents a fall of 0.9% from the closing price the previous day.

YTD performance

After losing 9.3% of the share value in 2018, Home Depot has started 2019 on a positive note. Home Depot stock has returned 9.6% YTD (year-to-date) as of February 26. During the same period, Lowe’s (LOW), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) have returned 13.7%, 12.8%, and 46.5%, respectively. The SPDR S&P Homebuilders ETF (XHB), which invests ~22.0% of its holdings in home improvement and furnishing companies, has returned 19.4% YTD.

Series overview

In this series, we’ll analyze Home Depot’s fourth-quarter performance. We’ll compare Home Depot’s performance with analysts’ expectations. We’ll also discuss the company’s guidance and analysts’ expectations for 2019. We’ll end the series by looking at analysts’ recommendations and the company’s valuation multiples.

Next, we’ll discuss Home Depot’s fourth-quarter revenues.


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