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Will Home Depot (HD) Retain its Earnings Beat Trend in Q2?

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We expect the world’s largest home improvement retailer, The Home Depot Inc. (HD - Free Report) to beat expectations when it reports second-quarter fiscal 2016 results on Aug 16, before the market opens. In the preceding quarter, the company posted an earnings beat of 7.5%.

Additionally, Home Depot outperformed the Zacks Consensus Estimate by an average of 4.2% over the past four quarters, with a beat in each.

HOME DEPOT Price and EPS Surprise

HOME DEPOT Price and EPS Surprise | HOME DEPOT Quote

Why a Likely Positive Surprise?

Our proven model shows that Home Depot may beat on earnings because it has the right combination of the two key components.

Zacks ESP: Home Depot currently has an Earnings ESP of +1.54%. This is because the Most Accurate estimate stands at $1.98 while the Zacks Consensus Estimate is pegged lower at $1.95.

Zacks Rank: Home Depot carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 and 3 have a higher chance of beating earnings estimates. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Home Depot’s Zacks Rank #3 and Earnings ESP of +1.54% makes us confident of an earnings beat.

What is Driving the Better-than-Expected Earnings?

As noted above, Home Depot has been outperforming estimates, mainly gaining strength from its focus on improving customer experience, solid execution and persistent housing market recovery. We remain hopeful about the company’s upcoming results given the robust guidance for fiscal 2016. Also, we expect its focus on developing merchandising tools and increasing investment in e-commerce to boost its top line and enhance market share.

In response to the evolving retail environment, where digital and physical stores go hand in hand, Home Depot remains keen on building its interconnected capabilities, as evident from the 21.5% growth in online sales and double-digit online-traffic growth recorded in the preceding quarter. Moreover, the company is on track to achieve its long-term dividend payout, share repurchase and return on investment targets, which highlight its financial strength.

Other Stocks to Consider

Home Depot is not the only firm looking up this earnings season. The following companies are also likely to beat on earnings in the to-be-reported quarter:

Lowe's Companies Inc. (LOW - Free Report) , scheduled to report earnings on Aug 17, has an Earnings ESP of +2.13% and a Zacks Rank #2 (Buy).

L Brands Inc. , scheduled to report earnings on Aug 17, has an Earnings ESP of +1.70% and a Zacks Rank #3.

DSW Inc. , scheduled to report earnings on Aug 23, has an Earnings ESP of +6.90% and a Zacks Rank #2.

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