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Home Depot (HD) Up 10.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Home Depot (HD - Free Report) . Shares have added about 10.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Home Depot due for a pullback? 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 drivers.

Home Depot’s Earnings & Sales Surpass Estimates in Q1

Home Depot posted better-than-expected earnings for first-quarter fiscal 2019, retaining its beat streak for five years now. Also, the company’s top line outpaced the Zacks Consensus Estimate after a miss in the last reported quarter.

Quarterly results were fueled by underlying performance of the company’s core business. However, adverse weather in February and deflation in lumber prices hurt Home Depot’s comparable store sales (comps), which lagged analysts’ expectations. Nevertheless, management reiterated its guidance for fiscal 2019.

Q1 Highlights

Adjusted earnings of $2.27 per share increased 9.1% from $2.08 registered in the year-ago quarter. The bottom line also exceeded the Zacks Consensus Estimate of $2.16.

Net sales grew 5.7% to $26,381 million from $24,947 million in the year-ago quarter and surpassed the Zacks Consensus Estimate of $26,298 million. While the company's overall comps increased 2.5%, in the United States comps grew 3%.

During the reported quarter, comps were aided by a 2% rise in average ticket and a 3.8% increase in customer transactions. Moreover, sales per square foot rose 5.6%.

In dollar terms, gross profit improved 4.6% to $9,017 million from $8,617 million in the year-ago quarter, primarily driven by higher sales. However, gross profit margin contracted 30 basis points (bps) to 34.2%.

Operating income increased 6.4% to $3,597 million, while operating margin was flat year over year at 13.6%.

Balance Sheet and Cash Flow

Home Depot ended the quarter with cash and cash equivalents of $1,882 million, long-term debt (excluding current maturities) of $26,804 million, and shareholders' deficit of $2,143 million. In first-quarter fiscal 2019, it generated $4,575 million of net cash from operations.

Further, the company paid cash dividends of $1,499 million and repurchased shares worth $1,368 million in the reported quarter.

Outlook

Backed by solid growth strategies as well as present macroeconomic and housing backdrop, Home Depot reaffirmed its sales and earnings view for fiscal 2019, which have 52 weeks.

It expects sales growth of nearly 3.3%, with about a 5% increase in comps (for the comparable 52-week period). Additionally, the company anticipates earnings per share of $10.03 for fiscal 2019, up nearly 3.1% year over year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Home Depot has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Home Depot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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