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Home Depot (HD) Likely to Miss Q1 Earnings

Zacks Equity Research

The world’s largest home improvement retailer, Home Depot Inc. (HD) is set to report its first quarter fiscal 2014 results on May 20. In the last quarter it posted a positive surprise of approximately 4.3%. Let’s see how things are shaping up for this announcement.

Factors Influencing the Upcoming Results

Following an impressive fourth-quarter fiscal 2013, the company remains optimistic about its results for fiscal 2014. The company expects sales to increase 4.8% while earnings to grew by 16.5% to $4.38 per share in fiscal 2014.

However, we believe this optimism for the rest of the year could be slightly impacted by the upcoming quarter’s results, wherein the company’s sales might get hurt by slowdown in the housing industry growth due to severe winter weather in January and February, rising mortgage rates as well as increased housing prices. Additionally, we expect the impact on sales to slightly weigh upon first quarter earnings.

Earnings Whispers?

Our proven model does not conclusively show that Home Depot is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3 for this to happen. This is not the case here, as you will see below.

Negative Zacks ESP: ESP (Expected Surprise Prediction) for Home Depot is -1.01% since the Most Accurate estimate stands at 98 cents per share, which is lower than the Zacks Consensus Estimate of 99 cents.

Zacks Rank #4 (Sell): Home Depot’s Zacks Rank #4 when combined with a negative ESP makes surprise prediction difficult. We caution against stocks with a Zacks Ranks #4 and #5 (Sell-rated stocks) going into earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

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

Best Buy Co., Inc. (BBY) has an Earnings ESP of +5.00% and a Zacks Rank #2 (Buy).

The Gap Inc. (GPS) holds an Earnings ESP of +1.79% and a Zacks Rank #3 (Hold).

Aeropostale Inc. (ARO) with an Earnings ESP of +6.94% carries a Zacks Rank #3.

Read the Full Research Report on HD
Read the Full Research Report on ARO
Read the Full Research Report on BBY
Read the Full Research Report on GPS

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