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Home Depot (HD) Up 6.1% Since Earnings Report: Can It Continue?

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About a month has gone by since the last earnings report for The Home Depot, Inc. (HD - Free Report) . Shares have added about 6.1% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Home Depot Q2 Earnings & Sales Top, Raises FY17 View

Home Depot reported second-quarter fiscal 2017 earnings of $2.25 per share, which escalated 14.2% from $1.97 in the year-ago quarter and beat the Zacks Consensus Estimate of $2.21.

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. Further, the company continued to reap the benefits of a steady housing market recovery and strong customer demand.

Quarterly Details

Net sales grew 6.2% to $28,108 million from $26,472 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $$27,840.5 million. The company's overall comparable-store sales (comps) increased 6.3%, while comps in the United States grew 6.6%.

Gross profit in the reported quarter improved 6% to $9,461 million from $8,927 million in the year-ago quarter, primarily driven by higher sales.

Improved gross profit led operating income to increase 8.8% to $4,463 million during the fiscal quarter. Further, operating margin expanded 40 bps from the year-ago quarter to 15.9%.

Balance Sheet and Cash Flow

Home Depot ended the fiscal second quarter with cash and cash equivalents of $4,830 million, long-term debt (excluding current maturities) of $24,422 million and shareholders' equity of $3,554 million. In first-half fiscal 2017, the company generated $7,862 million of net cash from operations.

Fiscal 2017 Outlook

Following the robust fiscal first half performance, Home Depot raised earnings and sales guidance for fiscal 2017. The company now expects sales growth of nearly 5.3%, alongside a 5.5% increase in comps. Earlier, the company expected both net sales and comps for fiscal 2017 to increase 4.6%. Moreover, management now anticipates earnings per share to increase about 13% to $7.29 in fiscal 2017, compared with the previous guidance of 11% growth to $7.15. The guidance includes $7 billion impact from share repurchases.

How Have Estimates Been Moving Since Then?

Following the release and in the last month, investors have witnessed an upward trend for fresh estimates. There have been three revisions higher for the current quarter compared to one lower. While looking back an additional 30 days, we can see even more upward momentum.

The Home Depot, Inc. Price and Consensus

 

The Home Depot, Inc. Price and ConsensusThe Home Depot, Inc.Quote

VGM Scores

At this time, Home Depot's stock has a strong Growth Score of A, though it is lagging a lot on the momentum front with a C. Following the exact same course, the stock was allocated also a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.




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