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Is an Earnings Beat In Store for Home Depot (HD) in Q3?

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We expect leading home improvement retailer, The Home Depot, Inc. (HD - Free Report) to beat expectations when it reports third-quarter fiscal 2017 results on Nov 14. In the last quarter, the company delivered a positive earnings surprise of 1.8%.

Moreover, the company has a spectacular positive earnings surprise record for five years now. For the trailing four quarters, the company has delivered an average positive earnings surprise of 3.8%. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The question lingering in investors’ minds now is whether Home Depot will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the quarter under review is $1.81 per share, up 12.9% from the year-ago quarter. We note that the Zacks Consensus Estimate for the quarter has moved up in the last 30 days. Analysts polled by Zacks anticipate revenues of $24.4 billion, reflecting a year-over-year increase of 5.4%.

Moreover, we note that the stock has outperformed the industry year to date. The company’s shares have increased 22.5%, while the industry grew 16.9%. This solid growth comes on the back of a spectacular surprise history and growth strategies, including an interconnected strategy and focus on Pro customers.



Factors at Play

Home Depot has been gaining from strong earnings trends, robust outlook, efforts to improve customer experience along with promising capital strategy. Additionally a recovering housing market and the rehabilitation process following the hurricanes have been aiding its performance.

The company has been displaying solid growth across all regions, both in stores and online. Further, Pro category sales continue to outperform, driven by constant efforts to enrich customers’ experiences.

Additionally, the company’s comparable store sales (comps) trend has been encouraging as it has surpassed the Zacks comps estimate for over two years now. In the most recent quarter, the company’s comps improved 6.3%, surpassing the Zacks estimate of 4.7%. Comps growth was aided by robust average ticket, which also topped the Zacks Consensus mark. For the third-quarter, the Zacks Consensus Estimate for average ticket is pegged at 61.

Home Depot’s second-quarter fiscal 2017 results gained from growth across the company’s interconnected platform as well as all regions. The company’s relentless focus on affording innovative products, boosting interconnected customer experience and driving productivity seems to be paying off. Additionally, housing market recovery remains a tailwind.

The sturdy first half and expectations of improved home prices and re-emergence of first-time homebuyers, encouraged the company to raise fiscal 2017 view. The company anticipates sales growth of nearly 5.3%, alongside a 5.5% increase in comps. Moreover, management now anticipates earnings per share to increase about 13% to $7.29 in fiscal 2017.

What the Zacks Model Unveils?

Our proven model shows that Home Depot is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Earnings ESP of +0.76% and the company’s Zacks Rank #2 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks with Favorable Combination

Here are some companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +1.65% and a Zacks Rank #2. You can seethe complete list of today’s Zacks #1 Rank stocks here.

Ross Stores Inc. (ROST - Free Report) has an Earnings ESP of +0.27% and a Zacks Rank #2.

Signet Jewelers Limited (SIG - Free Report) has an Earnings ESP of +69.09% and a Zacks Rank #2.

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