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Home Depot Earnings Not Enough; Home Depot Stock Falls

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Stock performance

Despite outperforming analysts’ revenue and EPS estimates, Home Depot (HD) was trading ~0.5% down in the pre-market hours of trading on May 21. For the first quarter, the company has posted an overall SSSG of 2.5%, which was lower than analysts’ expectations. Home Depot’s management reiterated its EPS guidance for 2019 at $10.03, which was lower than analysts’ expectations of $10.10. All of these factors appear to have led to a fall in the company’s stock price.  Click HERE to see what investors were expecting before the call.

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YTD (year-to-date), Home Depot has returned 11.7% as of May 20. The home improvement retailer has been lagging the broader equity market. The S&P 500 Index (SPY) has returned 13.7% during the same period. Lowe’s Companies (LOW), Williams-Sonoma (WSM), and Bed Bath & Beyond (BBBY) have returned 16.5%, 5.5%, and 34.7%, respectively.

Guidance

For 2019, Home Depot’s management has reiterated its guidance. Home Depot’s revenues are expected to rise 3.3% in 2019. The company’s SSSG is expected to be 5.0% on 52-week comparisons. The company’s management also expects the adjusted EPS to be $10.03 for the year.

Valuation multiple

The increase in Home Depot’s stock price since the beginning of this year has led to a rise in its valuation multiple. As of May 20, the company was trading at a forward PE ratio of 18.4x—compared to 16.8x at the beginning of 2019. Lowe’s, Williams-Sonoma, and Bed Bath & Beyond were trading at a forward PE ratios of 17.3x, 11.5x, and 7.2x, respectively.

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