The Home Depot, Inc. HD is set to report fourth-quarter fiscal 2024 results on Feb. 25, before market open. The company’s top and bottom lines are expected to have increased year over year in the to-be-reported quarter. The Zacks Consensus Estimate for fiscal fourth-quarter revenues is pegged at $39 billion, indicating growth of 12.2% from that reported in the year-ago quarter.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
The Zacks Consensus Estimate for quarterly earnings per share (EPS) of $3.08 indicates growth of 9.2% from the year-ago period’s reported figure. The consensus estimate for EPS has moved up 2.7% in the past 30 days.
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 2.3%. In the last reported quarter, the company delivered an earnings surprise of 3.9%. Given its positive record, the question is, can HD maintain the momentum?
The Home Depot, Inc. Price and EPS Surprise
The Home Depot, Inc. price-eps-surprise | The Home Depot, Inc. Quote
HD’s Earnings Whispers
Our proven model conclusively predicts 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. 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 +4.33% 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 Q4 Earnings
Home Depot’s fourth-quarter fiscal 2024 performance is expected to show continued top-line recovery, primarily driven by contributions from the recently acquired SRS Distribution Inc. Sales are also likely to have benefited from improved seasonal category engagement and hurricane-related demand from Helene and Milton.
On the last reported quarter’searnings call Home Depot raised its fiscal 2024 sales and earnings per share (EPS) outlook, citing hurricane-driven demand, the inclusion of SRS results and gains from an additional 53rd week. The company anticipates a 4% year-over-year sales increase for fiscal 2024, supported by a $2.3-billion boost from the 53rd week and $6.4 billion in incremental SRS sales. Our model forecasts a 3.8% year-over-year rise in net sales for fiscal 2024 and an 11% increase for the fourth quarter.
Home Depot’s “One Home Depot” investment strategy, focused on supply-chain expansion, technology enhancements and digital improvements, continues to drive growth. Its interconnected retail model has been boosting online traffic and conversions, with about 50% of online orders fulfilled in stores. These trends are expected to have supported digital sales growth in the quarter.
However, persistent challenges related to higher interest rates and increased macroeconomic uncertainty are expected to have dented consumer demand for home improvement projects, hurting Home Depot’s fourth-quarter fiscal 2024 performance. A decline in comparable customer transactions, led by soft sales of big-ticket discretionary categories, has been hurting the overall comparable sales (comps). Additionally, elevated interest rates have been pressuring profitability.
On the last reported quarter’searnings call management projected comps to decline 2.5% for fiscal 2024 (52-week period). Management anticipates net interest expenses for fiscal 2024 at $2.1 billion. Our model predicts comps to fall 2.5% for fiscal 2024 and 2.4% for the fiscal fourth quarter. We expect interest and other income/expenses, net, to increase 27.9% and 18.8%, respectively, for the fourth quarter and fiscal 2024.
Home Depot’s margins remain under pressure due to higher operating costs and expenses from the SRS acquisition. While the gross margin is affected by an adverse sales mix, lower shrink has helped offset some impacts. On the last reported quarter’searnings call management projected a fiscal 2024 gross margin of 33.5% and an operating margin of 13.5%, at the low end of prior guidance. The adjusted operating margin is expected to reach 13.8%.
GAAP EPS is anticipated to decline 2% year over year, improving from the prior mentioned 2-4% drop, while adjusted EPS is projected to fall 1%, better than the previously stated 1-3% decline. The 53rd week is estimated to add 30 cents per share to EPS. Our model forecasts adjusted EPS of $15.11 for fiscal 2024, indicating a 0.9% year-over-year decline.
HD’s Price Performance & Valuation
Home Depot’s shares have gained 8.6% in the past year, comparing unfavorably with the broader industry and the Retail-Wholesale sector’s growth of 17.7% and 31.2%, respectively. The HD stock has also lagged the S&P 500’s 24.1% rally in the same period.
However, the Home Depot stock has slightly outpaced its arch-rival Lowe’s Companies Inc.’s LOW rise of 8.3% in the past year. Shares of competitors Williams-Sonoma, Inc. WSM and Tecnoglass TGLS recorded gains of 94.3% and 68.1%, respectively, in the same period.
At the current price of $395.43, HD trades at a 10% discount from its 52-week high mark of $439.37, reflecting upside potential.
HD’s One-Year Stock Performance
Image Source: Zacks Investment Research
Home Depot’s current valuation appears quite pricey. The company trades at a forward 12-month P/E multiple of 25.23X, exceeding the industry average of 23.12X and the S&P 500’s average of 22.71X.
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.
Image Source: Zacks Investment Research
Investment Thesis
Home Depot has consistently delivered revenue growth and strong profitability, driven by its leadership in the home improvement market, and strategic investments in technology, digital capabilities and supply-chain efficiency through its “One Home Depot” plan. With a focus on both DIY customers and professional contractors, the company remains a top choice for homeowners and industry professionals. Its extensive store network, diverse product offerings and expanding online presence position it well to meet growing consumer demand.
Home Depot’s interconnected retail strategy and advanced technology infrastructure continue to drive web traffic and enhance customer experience. The company is also strengthening its Pro ecosystem, solidifying its competitive edge in the home improvement retail duopoly alongside Lowe’s.
High employee engagement, expanding online sales and enhanced home delivery services are expected to support ongoing market share growth. The acquisition of SRS Distribution has bolstered its presence in building material distribution, improving service offerings for professional contractors and tradespeople.
However, near-term challenges, including weaker consumer demand for big-ticket items and broader economic pressures, suggest a cautious approach before making an investment decision.
Conclusion
As Home Depot approaches its fourth-quarter fiscal 2024 earnings release, investors are keen to see if it meets expectations. Deciding whether to invest now can be challenging. While the company’s strong market position, strategic initiatives like the “One Home Depot” plan and solid Pro customer growth are promising, it is important to stay mindful of potential risks. Evaluating these factors ahead of the earnings report can provide valuable insight for a well-informed investment choice.
Despite Home Depot’s long-term potential, patience is the key. Monitoring developments to identify an optimal entry point is a prudent approach. For current shareholders, holding onto the stock may be a wise move, as the upcoming earnings report is expected to reinforce the company’s strong fundamentals.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
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 >>Lowe's Companies, Inc. (LOW) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
Williams-Sonoma, Inc. (WSM) : Free Stock Analysis Report
Tecnoglass Inc. (TGLS) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
