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Home Depot: What to Expect from Its Q3 Earnings

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Home Depot (HD) is scheduled to announce its third-quarter earnings on Tuesday. Analysts expect the company to post an EPS of $2.53 in the third quarter. The consensus estimate reflects about 1% growth YoY (year-over-year). Meanwhile, analysts expect Home Depot to post revenues of $27.53 billion—up 4.7% YoY.

During the last reported quarter, Home Depot posted an EPS $3.17, which beat analysts’ estimates and increased about 4% YoY. However, the company’s revenues fell short of analysts’ expectations, which reflected lower lumber prices.

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What could impact Home Depot’s Q3 earnings?

We expect Home Depot’s sales to sustain the momentum with growth across most merchandise categories. Sales of big-ticket items over $1,000 will likely grow, which reflects growth in vinyl-plank flooring, appliances, and patio. However, lower lumber prices could continue to impact Home Depot’s top-line growth.

During the second-quarter conference call, Home Depot lowered its sales outlook due to lower lumber prices and tariffs. Notably, lumber sales represent 8% of the company’s total revenues. Home Depot expects the sales to increase 2.3% in 2019—down from its earlier guidance of 3.3% growth. The company also cut its comparable-store sales growth forecast from 5% to 4%.

We think that Home Depot’s margins could remain subdued, which reflects a higher shrink and unfavorable product mix.

The company’s bottom-line growth will likely stay low, which reflects soft margins and a higher effective tax rate. However, share repurchases could continue to drive bottom-line growth.

Lowe’s could beat Home Depot with Q3 EPS growth

While Home Depot’s EPS growth will likely stay low, analysts expect Lowe’s (LOW) to post stellar EPS growth in the third quarter. Analysts expect Lowe’s to post an adjusted EPS of $1.35 in the third quarter, which implies about 30% growth YoY.

A healthy macroeconomic backdrop, strong demand, and the holiday season will likely boost Lowe’s financial performance. Analysts’ consensus estimate indicates that Lowe’s could post strong growth in its EPS in the second half of 2019. The company will likely sustain the momentum in 2020 as well.

Analysts expect Lowe’s to post revenues of $17.68 billion in the third quarter. The company will report its third-quarter results on Wednesday.

Stock performance

Despite the guidance cut, Home Depot stock has risen about 38% on a YTD (year-to-date) basis as of November 15. In comparison, Lowe’s stock has risen 25.1%, while the S&P 500 has risen 24.5%.

Analysts remain upbeat on Home Depot stock. Most of the analysts recommend a “buy.” Among the 34 analysts, 20 recommend a “buy,” 13 recommend a “hold,” and one recommends a “sell” rating on the stock.

However, analysts’ average target price doesn’t indicate anymore upside in Home Depot stock. Analysts have a target price of $237.28 on the stock, which is on par with its closing price of $237.29 on November 15.

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