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Why Wall Street Expects Home Depot’s EPS to Fall in 2019

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Analysts’ expectations

For 2019, Home Depot’s (HD) management team expects diluted EPS to rise 3.1% to $10.03. Analysts forecast the company’s EPS at $10.10 this year, a rise of 2.1% from $9.89 in 2018. In 2018, the company had posted EPS growth of 32.6%.

Home Depot’s revenue growth and share repurchases are expected to drive EPS in 2019 while a decline in the EBIT margin and a higher effective tax rate are expected to offset some of the growth in the company’s EPS.

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For 2019, analysts expect Home Depot’s EBIT margin to fall from 14.6% in 2018 to 14.4%. The decline in gross margins and higher selling, general, and administrative expenses are likely to lower the company’s EBIT margin. For 2019, management expects an effective tax rate of ~25.5%, compared to 23.6% in 2018.

Home Depot announced a new share repurchase program of $15 billion on February 26. The company plans to use $5 billion of this program to repurchase shares in 2019. Share repurchases lower the number of shares outstanding, driving EPS.

Peer comparisons

For the comparable period, Lowe’s (LOW) and Williams-Sonoma (WSM) are expected to post EPS growth of 18.9%, and 3.1%, respectively.

Dividends

On February 25, Home Depot reported quarterly dividends of $1.36 per share at an annualized rate of $5.44. As of April 5, the company’s dividend yield stood at 2.69% with its stock price trading at $200.86. On the same day, the dividend yield for Lowe’s and Williams-Sonoma stood at 1.67%, and 3.19%, respectively.

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