[Updated: 09/01/21] Home Depot Stock Update

Home Depot (NYSE: HD) recently reported its Q2 report, wherein revenues were inline and earnings were above our estimates. The company reported revenues of $41.1 billion, 2% above the consensus estimate of $40.4 billion. The home improvement retailer’s earnings per share came in at $4.53, ahead of the $4.39 consensus and $4.34 per Trefis estimates. While Home Depot’s revenues jumped 8% year-over-year (y-o-y), its total comparable-store sales of 4.5% missed the consensus of 5.6%, as fewer people visited to buy items for do-it-yourself projects. The retailer reported a 5.8% drop in customer transactions from a year earlier, but the average ticket was 11.3% larger. It should also be noted that the company’s U.S. comparable sales grew only 3.4% (missing the consensus estimate of 4.9%), and much lower than the 30% it saw in Q1. However, the company’s U.S. comps still topped rival Lowe’s decline of 2% in comparable comps during the same period.

We have updated our model following the Q2 release. We now forecast sales to be $144.3 billion for the full year 2021, up 9% y-o-y, compared to our previous estimate of 3.5% y-o-y growth. Looking at the bottom line, we now forecast EPS to come in at $14.30, compared to our earlier estimate of $12.89. The company did not provide any outlook due to uncertainty around the Covid pandemic and the spreading Delta variant. In the fiscal first half, Home Depot saw sales from the professional customer outpace those of the DIY customer, and we expect this trend to continue into the back half of the year as well. Given the changes to our revenues and earnings forecast, we have revised our Home Depot Valuation at $348 per share, based on $14.30 expected EPS and a 24.4x P/E multiple for fiscal 2021 – 7% higher than the current market price.

[Updated: 08/13/21] Home Depot Q2 Pre-Earnings

Home Depot (NYSE: HD) is scheduled to report its fiscal second-quarter results on Tuesday, August 17. We expect the company’s stock to see little movement due to its revenues beating market expectations but earnings falling short marginally. The home improvement leader has seen revenue and net income grow by double-digits as millions of homeowners found themselves spending substantially more time in their homes in 2020, with the online space being a key driver of this impressive growth. The robust housing market has also provided the company with a favorable economic environment to thrive. In fact, the retailer continued to benefit from strong demand for home improvement products and home building supplies in the first half of 2021, as well. However, with growing demand Home Depot also faced surging costs in areas of transportation, supply chain, and labor – which could likely contract gross profit and operating margins in the second quarter. Our forecast indicates that Home Depot’s valuation is $333 per share, which is almost in line with the current market price. Look at our interactive dashboard analysis on Home Depot’s Pre-Earnings: What To Expect in Q2? for more details.

(1) Revenues expected to be slightly ahead of the consensus estimates

Trefis estimates Home Depot’s Q2 2021 revenues to be around $41.0 Bil, slightly ahead of the consensus estimate of $40.4 Bil. It should be noted that Home Depot’s average online transaction ticket size is three times that in a store. Sales using digital platforms soared 86% in fiscal 2020 compared to the prior year, and approximately 62% of online orders were fulfilled through a store. While the digital sales growth decelerated to 27% in the recent Q1, this growth was still up 2x on a two-year stacked basis. In fact, Home Depot was able to grow revenue by 33% in Q1, despite a tough comparison from last year and an increase in the vaccination rates in the U.S. Its comparable sales growth of 31% in Q1 came from a 19% gain in transactions and 10% jump in the average ticket price. In addition, sales per square foot grew 29.8% y-o-y in Q1 compared to a growth of 24.0% y-o-y in the same quarter a year ago. By and large, the retailer has been able to increase revenues per square foot, rather than generating revenues from new square footage. All this indicating that its existing store network is being effectively used to drive revenues. We expect this momentum to continue into Q2 as well.

2) EPS to likely miss consensus estimates slightly

Home Depot’s Q2 2021 earnings per share is expected to be $4.34 per Trefis analysis, marginally lower than the consensus estimate of $4.39. In Q1, the company’s operating margin came in as a surprise at 15.4% of sales during a noisy quarter, compared to 11.6% in the same period last year. Its EPS grew a whopping 85% y-o-y to $3.86 during this period. Despite expected increased demand in Q2, risks regarding the growing Delta variant outbreaks could increase the costs in terms of sanitization, supply chain, and labor. This could pinch the net profit in the quarter to a little extent.

For the full year, we expect Home Depot’s net margin to grow 50 basis points from 9.7% in 2020 to 10.2% in 2021. This coupled with a 3.5% y-o-y growth in Home Depot revenues, could lead to a rise of $1 billion y-o-y in net income to $13.9 billion in 2021. All this, resulting in a possible EPS increase from $11.92 in 2020 to around $12.89 in 2021.

(3) Stock price estimate slightly higher than the current market price

Going by our Home Depot’s Valuation, with an EPS estimate of around $12.89 and P/E multiple of 25.8x in fiscal 2021, this translates into a price of 333, which is nearly in line with the current market price.

For further comparison among peer groups, it is helpful to see how they stack up. HD Stock Comparison With Peers shows how Home Depot compares against peers on metrics that matter.

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