U.S. Markets closed

Factors Setting the Tone for Home Depot (HD) in Q3 Earnings

Zacks Equity Research

The Home Depot, Inc. HD is slated to report third-quarter fiscal 2019 results on Nov 19, before the opening bell.

In second-quarter fiscal 2019, it delivered a positive earnings surprise of 3.3%. Moreover, its bottom line beat estimates by 5.8%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s earnings is pegged at $2.52, suggesting 0.4% growth from the prior-year quarter’s reported figure. Notably, the consensus mark has been unchanged in the past 30 days. For revenues, the consensus mark stands at $27.5 billion, which indicates growth of 4.5% from the year-ago quarter’s reported figure.

The Home Depot, Inc. Price and EPS Surprise

 

The Home Depot, Inc. Price and EPS Surprise

The Home Depot, Inc. price-eps-surprise | The Home Depot, Inc. Quote

Key Factors to Note

Home Depot has a robust earnings record, backed by ongoing strategies — including the integrated retail strategy — and solid execution. Its efforts to connect offline and online channels as well as investments in front-end stores to optimize labor and merchandise space productivity have led to improved customer satisfaction scores and conversion rates in stores. We expect the trend to get reflected in the top line and comparable store sales (comps) in third-quarter fiscal 2019.

Additionally, the company’s efforts to enhance the website and other applications along with investments in automated lockers are likely to have worked in its favor. Moreover, strength in the Pro business has been a key growth driver for Home Depot. The Pro segment has been benefiting from efforts to enhance service capabilities for the Pro customers. Home Depot has been making investments to bring a more personalized experience for Pro customers through its new B2B website.

Nonetheless, a significant decline in lumber prices over the past year has been concerning the company. On the last reported quarter’s conference call, management had stated that lumber price deflation will remain a drag on the top line in the quarters ahead. Further, it feared that the potential impacts of the recently enacted tariffs on U.S. consumers will hurt its sales performance.

Further, an increase in supply-chain costs, mainly resulting from startup costs related to the company’s “One Home Depot” supply-chain initiative, is likely to have hurt the gross margin.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Home Depot this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Home Depot carries a Zacks Rank #2, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks With Favorable Combination

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

Walmart Inc WMT currently has an Earnings ESP of +0.75% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowe's Companies, Inc LOW has an Earnings ESP of +1.62% and a Zacks Rank #2 at present.

Ross Stores, Inc ROST currently has an Earnings ESP of +4.03% and a Zacks Rank #2.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
The Home Depot, Inc. (HD) : Free Stock Analysis Report
 
Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
 
Ross Stores, Inc. (ROST) : Free Stock Analysis Report
 
Walmart Inc. (WMT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research