The world’s largest home improvement retailer, Home Depot Inc. (HD) is set to report second-quarter 2013 results on Aug 20. In the past quarter, it posted a positive surprise of approximately 7.8% and we expect the company to beat expectations for this quarter too.
Why a Likely Positive Surprise?
Our proven model shows that Home Depot may beat earnings because it has the right combination of two key components.
Positive Zacks ESP: Home Depot currently has Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +2.52%. This is because the Most Accurate Estimate stands at $1.22 per share, while the Zacks Consensus Estimate is pegged at $1.19.
Zacks #2 Rank (Buy): Note that stocks with a Zacks Rank #1, 2 and 3 have higher chances of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Home Depot’s Zacks Rank #2 (Buy) and Earnings ESP of +2.52% makes us confident of a positive earnings beat on Aug 20.
What is Driving Better-than-Expected Earnings?
Home Depot is a leading player in the highly fragmented home improvement industry. The company has been revamping itself by concentrating on square footage growth and the maximization of productivity from its existing store base. In addition, the company has implemented significant changes in its store operations to make them simpler and more customer-friendly. We believe that these initiatives will induce more traffic to its stores while boosting its top line.
Other Stocks to Consider
Home Depot is not the only firm we are looking up to this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat this quarter:
Five Below Inc. (FIVE) has an Earnings ESP of +11.11% and a Zacks Rank #2 (Buy).
Citi Trends, Inc. (CTRN) has an Earnings ESP of +2.33% and a Zacks Rank #2 (Buy).
Ross Stores Inc. (ROST) has an Earnings ESP of +1.08% and a Zacks Rank #2 (Buy).
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