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Can Home Depot (HD) Keep Positive Earnings Trend Alive in Q4?

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The Home Depot, Inc. (HD - Free Report) is slated to report fourth-quarter fiscal 2018 results on Feb 26, before the opening bell. In third-quarter fiscal 2018, the company delivered a positive earnings surprise of 10.5%.

Moreover, the company has a spectacular positive earnings surprise record for five years now. For the trailing four quarters, it delivered average positive earnings surprise of 5.8%. This can be attributed to spectacular growth strategies, including an interconnected strategy and focus on Pro customers. 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 earnings for the fiscal fourth quarter is pegged at $2.16, up nearly 27.8% from the year-ago quarter. However, the earnings estimate for the fiscal fourth quarter moved down in the last 30 days. The Zacks Consensus Estimate for revenues is pegged at $26.6 billion, reflecting a year-over-year increase of 11.2%.

The Home Depot, Inc. Price and EPS Surprise


The Home Depot, Inc. Price and EPS Surprise | The Home Depot, Inc. Quote

Driven by the company’s robust strategies and positive forward view, the stock has witnessed 7.1% increase in the past month, marking an outperformance compared with the broader sector’s growth of 2%. This reflects a positive sentiment on the stock ahead of the earnings release.


Factors at Play

Home Depot has displayed strength over the past several quarters, driven by robust strategies and solid execution. The company’s recent growth can be attributed to the smooth execution of the integrated retail strategy that connects offline and online channels. Notably, it considerably improved customer satisfaction scores and conversion rates through investments in interconnected capabilities, which encompass both digital properties and physical store assets.

Consequently, digital sales in third-quarter fiscal 2018 increased about 28%, backed by robust growth in online traffic. Furthermore, sales for both “buy online ship to store” and “buy online pickup in store” capabilities grew faster than the overall online sales growth rate for the fiscal third quarter. The company’s fiscal fourth quarter is also likely to gain from this strategy and enhanced digital sales.

Apart from enhanced digital portals, the scope of the integrated retail strategy extends to the supply-chain system, and investments for enhancing the delivery and fulfillment options for customers. Home Depot is currently in the early stages of its five-year investment journey under the “One Home Depot Supply Chain” initiative, which targets facilitating the fastest and most efficient delivery network in home improvement.

As part of this initiative, the company has been piloting fulfillment centers, which are delivering desired results. It plans to open more of these pilot facilities through the rest of 2018 and in early 2019.

Moreover, the company is keen on meeting customers’ immediate delivery needs, which is clear from the recent rollout of the car and van express delivery, which enables same-day delivery of store goods. The rollout of this service to about 40% of the U.S. population resulted in a marked increase in utilization from both Pro and DIY customers.

Overall, the company is poised to benefit from positive customer response for assortments as well as enhancements to drive integrated shopping experience. It is also likely to gain from strength across store operations, as well as digital portals, which reflect strong customer demand in the home improvement markets.

Backed by the aforementioned actions, Home Depot provided a robust view for fiscal 2018. The company expects sales growth of nearly 7.2% for fiscal 2018, including the 53rd week. Comps growth is estimated to be 5.5% (for the comparable 52-week period) and earnings per share are likely to be $9.75 for fiscal 2018.

What the Zacks Model Unveils

Our proven model shows that Home Depot is likely to beat earnings estimates this quarter. This is because it has the right combination for reporting an earnings beat namely — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Home Depot currently has an Earnings ESP of +1.22% and a Zacks Rank #3, which make us confident of an earnings beat in the fiscal fourth quarter.

Other Stocks With Favorable Combination

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

Zumiez Inc. (ZUMZ - Free Report) has an Earnings ESP of +0.45% and it currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Co. (ANF - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #2.

Foot Locker Inc. (FL - Free Report) has an Earnings ESP of +2.78% and a Zacks Rank #2.

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