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Home Depot (HD) Down 4.6% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for The Home Depot, Inc. (HD - Free Report) . Shares have lost about 4.6% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is HD due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Home Depot Keeps Earnings Beat Trend in Q4, Guides FY18
Home Depot reported an upbeat fourth-quarter fiscal 2017, continuing with its five-year-long trend of beating earnings estimates. Further, sales topped estimates for the sixth straight quarter and also grew year over year.
Following the solid close of the fiscal year, the company provided an optimistic view for fiscal 2018. Concurrently, it reiterated its financial targets for fiscal 2020 while updating the return on invested capital target to reflect the impact of the Tax Cuts and Jobs Act of 2017.
The company posted fiscal fourth-quarter adjusted earnings of $1.69 per share, which escalated 17.4% from $1.44 recorded in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $1.62.
Results gained from strength in the company’s core business. Its 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 7.5% to $23,883 million from $22,207 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $23,655 million. The company's overall comparable-store sales (comps) increased 7.5%, while comps in the United States grew 7.2%.
During the quarter, comps benefited from 2% growth in customer transactions and 5.5% increase in average ticket. Moreover, sales per square-feet rose 7.8%.
Gross profit margin in the reported quarter contracted 10 basis points (bps) to 33.9%. In dollar terms, gross profit improved 7.1% to $8,093 million from $7,553 million in the year-ago quarter, primarily driven by higher sales.
Operating income increased 9% to $3,189 million while operating margin expanded 40 bps from the year-ago quarter to 13.6%.
Balance Sheet and Cash Flow
Home Depot ended fiscal 2017 with cash and cash equivalents of $3,595 million, long-term debt (excluding current maturities) of $24,267 million and shareholders' equity of $1,454 million. In fiscal 2017, the company generated $12,031 million of net cash from operations.
Concurrently, the company declared a 15.7% increase in its quarterly dividend to $1.03 per share. This marked the company’s ninth straight year of dividend hike. The new dividend is payable on Mar 22, to shareholders with record as on Mar 8.
Outlook
Following the solid end of fiscal 2017, Home Depot initiated its sales and earnings guidance for fiscal 2018. The company’s operating results for fiscal 2018 will include an additional 53rd week compared with fiscal 2017. Further, the company reaffirmed its financial targets for fiscal 2020 while it updated the return on invested capital target to reflect the impact of the Tax Cuts and Jobs Act of 2017.
The company expects sales growth of nearly 6.5% in fiscal 2018, including about $1.6 billion sales contribution from the 53rd week. This will be accompanied by 5% increase in comps. Calculations for comps will be on a 52-week comparable basis.
Other assumptions driving the company guidance include gross margin of nearly 34% and operating margin of about 14.5%. Further, the company expects a tax rate of nearly 26%. Moreover, the company expects to spend nearly $2.5 billion in capital expenditures and generate cash flows of about $14.1 billion.
Consequently, the company estimates earnings per share for fiscal 2018 to be up nearly 28% to $9.31. The guidance includes $4-billion impact from share repurchases.
For fiscal 2020, the company continues to anticipate total sales in the range of $115-$120 billion, with compounded annual sales growth of nearly 4.5-6%. Operating margin is expected to be in the range of 14.4-15%. Moreover, the company expects annual average capital spending to be about 2.5% of sales.
The company now expects a return on invested capital to be more than 40%, reflecting the impact of the new tax reform.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been four revisions higher for the current quarter compared to seven lower.
At this time, HD has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. Charting a somewhat similar path, the stock was allocated 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.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Notably, HD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Home Depot (HD) Down 4.6% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for The Home Depot, Inc. (HD - Free Report) . Shares have lost about 4.6% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is HD due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Home Depot Keeps Earnings Beat Trend in Q4, Guides FY18
Home Depot reported an upbeat fourth-quarter fiscal 2017, continuing with its five-year-long trend of beating earnings estimates. Further, sales topped estimates for the sixth straight quarter and also grew year over year.
Following the solid close of the fiscal year, the company provided an optimistic view for fiscal 2018. Concurrently, it reiterated its financial targets for fiscal 2020 while updating the return on invested capital target to reflect the impact of the Tax Cuts and Jobs Act of 2017.
The company posted fiscal fourth-quarter adjusted earnings of $1.69 per share, which escalated 17.4% from $1.44 recorded in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $1.62.
Results gained from strength in the company’s core business. Its 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 7.5% to $23,883 million from $22,207 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $23,655 million. The company's overall comparable-store sales (comps) increased 7.5%, while comps in the United States grew 7.2%.
During the quarter, comps benefited from 2% growth in customer transactions and 5.5% increase in average ticket. Moreover, sales per square-feet rose 7.8%.
Gross profit margin in the reported quarter contracted 10 basis points (bps) to 33.9%. In dollar terms, gross profit improved 7.1% to $8,093 million from $7,553 million in the year-ago quarter, primarily driven by higher sales.
Operating income increased 9% to $3,189 million while operating margin expanded 40 bps from the year-ago quarter to 13.6%.
Balance Sheet and Cash Flow
Home Depot ended fiscal 2017 with cash and cash equivalents of $3,595 million, long-term debt (excluding current maturities) of $24,267 million and shareholders' equity of $1,454 million. In fiscal 2017, the company generated $12,031 million of net cash from operations.
Concurrently, the company declared a 15.7% increase in its quarterly dividend to $1.03 per share. This marked the company’s ninth straight year of dividend hike. The new dividend is payable on Mar 22, to shareholders with record as on Mar 8.
Outlook
Following the solid end of fiscal 2017, Home Depot initiated its sales and earnings guidance for fiscal 2018. The company’s operating results for fiscal 2018 will include an additional 53rd week compared with fiscal 2017. Further, the company reaffirmed its financial targets for fiscal 2020 while it updated the return on invested capital target to reflect the impact of the Tax Cuts and Jobs Act of 2017.
The company expects sales growth of nearly 6.5% in fiscal 2018, including about $1.6 billion sales contribution from the 53rd week. This will be accompanied by 5% increase in comps. Calculations for comps will be on a 52-week comparable basis.
Other assumptions driving the company guidance include gross margin of nearly 34% and operating margin of about 14.5%. Further, the company expects a tax rate of nearly 26%. Moreover, the company expects to spend nearly $2.5 billion in capital expenditures and generate cash flows of about $14.1 billion.
Consequently, the company estimates earnings per share for fiscal 2018 to be up nearly 28% to $9.31. The guidance includes $4-billion impact from share repurchases.
For fiscal 2020, the company continues to anticipate total sales in the range of $115-$120 billion, with compounded annual sales growth of nearly 4.5-6%. Operating margin is expected to be in the range of 14.4-15%. Moreover, the company expects annual average capital spending to be about 2.5% of sales.
The company now expects a return on invested capital to be more than 40%, reflecting the impact of the new tax reform.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. There have been four revisions higher for the current quarter compared to seven lower.
The Home Depot, Inc. Price and Consensus
The Home Depot, Inc. Price and Consensus | The Home Depot, Inc. Quote
VGM Scores
At this time, HD has a great Growth Score of A, though it is lagging a lot on the momentum front with a D. Charting a somewhat similar path, the stock was allocated 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.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions looks promising. Notably, HD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.