A month has gone by since the last earnings report for Home Depot (HD). Shares have added about 5.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Home Depot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Home Depot Beats on Sales & Earnings in Q3, Retains View
Home Depot has posted better-than-expected earnings and sales in third-quarter fiscal 2022. The top and bottom lines also improved year over year. The company’s results have benefitted from strong growth in project-related categories across the business. HD gained from continued strong demand for home improvement projects, robust housing market trends and ongoing investments. HD reiterated the guidance for fiscal 2022.
Home Depot’s earnings of $4.24 per share improved 8.2% from $3.92 registered in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate and our estimate of $4.11.
Net sales advanced 5.6% to $38,872 million from $36,820 million in the year-ago quarter and beat the Zacks Consensus Estimate of $37,970 million. The top line also surpassed our estimate of $37,823.8 million. Sales benefited from the continued robust demand for home-improvement projects, with strength in project-related categories.
HD’s overall comparable sales (comps) grew 4.3%, with a 4.5% improvement in the United States. In the reported quarter, comps were aided by an 8.8% rise in average ticket. This was partly offset by a 4.3% decline in customer transactions. Sales per square foot improved 5.3% in the reported quarter.
In dollar terms, the gross profit increased 5.3% to $13,224 million from $12,563 million in the year-ago quarter, primarily driven by robust sales growth. This was partly offset by a 5.7% increase in the cost of goods sold. The gross profit margin contracted 10 basis points (bps) to 34% from 34.1% in the year-ago quarter.
The operating income increased 6.1% to $6,148 million, while the operating margin expanded 10 bps to 15.8%. The operating margin was aided by top-line growth, which was partly negated by gross margin contraction and higher SG&A, and other operating expenses. Total operating expenses increased 4.6% in the quarter.
Balance Sheet and Cash Flow
Home Depot ended third-quarter fiscal 2022 with cash and cash equivalents of $2,462 million, long-term debt (excluding current maturities) of $41,740 million, and shareholders’ equity of $1,298 million. In the first nine months of fiscal 2022, the company generated $10,012 million of net cash from operations.
In the first nine months of fiscal 2022, HD paid out cash dividends of $5,856 million and repurchased shares worth $5,136 million.
Fiscal 2022 View
Home Depot has reiterated its guidance for fiscal 2022. HD anticipates comps growth of 3% for fiscal 2022. The operating margin is estimated to be 15.4%. Net interest expenses are expected to be $1.6 billion. It expects an effective tax rate of 24.6%. HD estimates earnings per share growth in the mid-single digits for fiscal 2022.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
VGM Scores
At this time, Home Depot has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Home Depot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Home Depot belongs to the Zacks Building Products – Retail industry. Another stock from the same industry, Builders FirstSource (BLDR), has gained 7.2% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.
Builders FirstSource reported revenues of $5.76 billion in the last reported quarter, representing a year-over-year change of +4.6%. EPS of $5.20 for the same period compares with $3.39 a year ago.
Builders FirstSource is expected to post earnings of $2.50 per share for the current quarter, representing a year-over-year change of -10.1%. Over the last 30 days, the Zacks Consensus Estimate has changed +1.5%.
Builders FirstSource has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.
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The Home Depot, Inc. (HD) : Free Stock Analysis Report
Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report
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