Home Depot (HD) is set to report first quarter fiscal 2021 earnings results before the opening bell Tuesday. Driven by a consistent rise in new home construction and home-related remodeling projects, Home Depot has established a strong track record for beating consensus estimates on both the top and bottom lines.
Home Depot stock responded favorably, soaring 22% year to date, more than doubling the 9% rise in the S&P 500 index. Its shares have enjoyed a strong run over the past six months, rising more than 17% compared to the 14% rise in the S&P 500 index. But can the housing market Home Depot has benefited from, which has also sent the real estate sector to its fastest price growth in more than a decade, remain resilient? This is one of many questions investors will focus on when Home Depot releases its results.
Based on April's robust figure of 83, from the National Association of Homebuilders' monthly index, the housing boom won’t bust anytime soon. What’s more, building permits and housing starts figures are also forecast to stay strong. And this, along with improved prospects from vaccinations, stimulus checks and increased buyer traffic, creates an opportunity for Home Depot to take market share over the next two to three years, according to various Wall Street analysts. The company’s guidance on Tuesday will provide a hint of how realistic that forecast might be.
In the three months that ended March, the Atlanta, GA.-based company is expected to earn $3.03 per share on revenue of $34.61 billion. This compares to the year-ago quarter when earnings were $2.08 per share on revenue of $27.54 billion. For the full year, ending January, earnings of $11.86 per share would rise 8% year over year from $12.91, while full-year revenue of the $136.65 billion would rise 3.4% year over year.
Aside from expanding its product offerings and improving its delivery and fulfillment capabilities, where it aims to increase both its two-day and one-day shipping initiatives, Home Depot has put $11 billion towards its digital capabilities through its One Home Depot program. However, the fact that Home Depot’s fiscal year EPS is expected to grow just 8% which is about 50% lower year over year, is one example of the tougher comparisons the company will be facing in 2021.
As noted, one of the major effects of the pandemic has been higher demand for homeownership as renters look to exit overcrowded cities. Higher homeownership, sparked by record-low mortgage rates for mortgage loans, caused a surge in demand for home improvement products and services. The concern is whether all that growth has been pulled forward, meaning the pandemic-driven revenue has already been spent?
In the fourth quarter Home Depot delivered results in that easily beat expectations on both the top and bottom lines. Fourth quarter revenue of $32.26 billion rose 25% year over year beating estimates by $1.7 billion. The bottom line was also strong, coming in at $2.65 per share, beating by 3 cents. Just as impressive was the same-store sales figure of 24.5%, topping consensus of 19% increase. On Tuesday investors will want to see whether Home Depot can build on these numbers or whether it will suffer from home-improvement fatigue.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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