The Home Depot, Inc. HD is set to report third-quarter fiscal 2024 results on Nov 12, before market open. The company’s top line is expected to have increased year over year in the to-be-reported quarter. The Zacks Consensus Estimate for fiscal third-quarter revenues is pegged at $39.2 billion, indicating growth of 4% from that reported in the year-ago quarter.
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The Zacks Consensus Estimate for quarterly earnings of $3.64 per share indicates a decline of 4.5% from the year-ago period’s reported figure. The consensus estimate has been unchanged in the past 30 days.
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The Atlanta, GA-based company has been reporting steady earnings despite the softened demand environment. The company has delivered a positive bottom-line surprise trend in the trailing four quarters. The leading home improvement retailer delivered a trailing four-quarter average earnings surprise of 1.64%. In the last reported quarter, the company delivered an earnings surprise of 2.9%. Given its positive record, the question is, can HD maintain the momentum?
Earnings Whispers
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 is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Home Depot has an Earnings ESP of 0.00% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Trends to Monitor Before HD’s Q3 Earnings
Home Depot’s third-quarter fiscal 2024 performance is expected to have reflected continued impacts of broad-based pressure across the business, driven by softened consumer demand for certain big-ticket, discretionary categories, a trend that started in first-quarter fiscal 2024. This ongoing softness has been led by higher interest rates and increased macroeconomic uncertainty, dampening the demand for home improvement projects.
The deflation of core commodity categories, particularly lumber and copper prices, has also been affecting the company’s top-line performance. Apart from pressurized demand for larger projects, the company has been impacted by elevated interest rates, since the beginning of 2024. Although the Fed’s recent rate cut offers long-term growth potential, near-term challenges persist.
We expect these factors to have collectively weighed on Home Depot’s sales, comparable sales (comps), and overall profitability in the to-be-reported quarter. Our model predicts comps growth of 3.3% for third-quarter fiscal 2024.
The Home Depot, Inc. Price and EPS Surprise
The Home Depot, Inc. price-eps-surprise | The Home Depot, Inc. Quote
However, Home Depot’s performance in the third quarter of fiscal 2024 is likely to have benefited from several positive trends, including growth in the Pro and DIY customer categories, and digital momentum.
HD has been witnessing favorable trends and gaining a share of customers’ wallets, both in stores and online, through the expansion of its Pro Ecosystem. Driving sales growth with Pro customers has been its key focus area. On the last reported quarter’searnings call the company noted that Pro backlogs continued to be healthy and elevated relative to historical trends. Continued growth in the Pro business is likely to have aided the top line in the to-be-reported quarter.
Additionally, the execution of Home Depot’s “One Home Depot” strategy — focused on expanding the supply chain, enhancing technology and boosting digital capabilities — has shown significant benefits. The interconnected retail approach has consistently driven increased web traffic and improved online conversions, with around 50% of online orders fulfilled through stores. These ongoing trends are expected to have bolstered digital sales in the to-be-reported quarter.
HD’s Price Performance & Valuation
Home Depot’s shares have gained 12.1% year to date, comparing unfavorably with the broader industry and the Retail-Wholesale sector’s growth of 17% and 22.4%, respectively. The HD stock has also lagged the S&P 500’s 21.6% rally in the same period.
Not only that, the Home Depot stock has underperformed its arch-rival Lowe’s Companies Inc.’s LOW rise of 17.6% year to date. Shares of competitors GMS Inc. GMS and Tecnoglass TGLS recorded gains of 19.9% and 53.7%, respectively, in the same period.
At the current price of $388.37, HD trades at a 7.9% discount from its 52-week high mark of $421.56.
HD’s YTD Stock Performance
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Home Depot’s current valuation appears quite pricey. The company trades at a forward 12-month P/E multiple of 25.16X, exceeding the industry average of 23.56X and the S&P 500’s average of 21.85X.
Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The retail market is becoming increasingly competitive and Home Depot’s initiatives may not suffice to drive significant growth. Macroeconomic challenges and heightened competition could impede the company's ability to sustain its current growth trajectory.
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Investment Thesis
Home Depot has consistently achieved revenue growth and strong profitability, fueled by its leadership position in the home improvement market, and ongoing investments in technology, digital capabilities and supply-chain efficiency through its "One Home Depot" plan. The company’s focus on customer service, be it Do-it-Yourself support or professional (Pro) contractor services, makes it a go-to destination for homeowners and industry professionals. With a vast store network, broad product selection and growing online presence, HD effectively meets increasing consumer demand.
The company’s interconnected retail strategy and strong technology infrastructure have consistently boosted web traffic. HD is advancing investments to build a Pro ecosystem. Also, Home Depot benefits from a competitive advantage as part of a duopoly, primarily competing with Lowe’s in the home improvement retail sector.
Home Depot’s well-managed inventory, high employee engagement, and expanding online sales and home delivery services are expected to continue driving market share growth. The acquisition of SRS Distribution has further strengthened its role in building material distribution, and enhanced its services for professional contractors and tradespeople.
The U.S. Federal Reserve’s rate cut also positions the company to benefit from lower interest rates, which should increase the demand for home improvement projects. However, near-term challenges related to soft consumer demand for big-ticket items and broader economic pressures suggest caution before making any investment decision.
Conclusion
As Home Depot prepares to announce its third-quarter fiscal 2024 results, investors are eager to see if it lives up to expectations. Making an investment decision at this time may be a tough call. While the company’s strong market share, strategic moves like the "One Home Depot" plan and solid Pro customer growth are positive indicators, it is wise to monitor potential challenges closely. Assessing these factors ahead of the earnings release can offer valuable insight for a well-informed investment decision.
Although Home Depot offers long-term potential, investors should avoid hasty decisions. Observing developments to find an optimal entry point is a prudent strategy. For those who already own Home Depot stock, it may be wise to hold it as the upcoming earnings report is expected to reaffirm the company's strong performance.
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