As the pandemic has kept everyone in their houses, many of us have become Tim “The Toolman” Taylor. Home Improvement is suddenly everyone’s favorite hobby, and that has helped Home Depot. Investors will see just how much when the retailer reports earnings Tuesday morning.
Home Depot stock (ticker: HD) has climbed more than 30% in 2020, more than six times the S&P 500’s gains in the same period.
Home Depot Has Thrived During COVID
It isn’t hard to see why. Those who have been lucky enough to stay employed during the pandemic aren’t spending money on travel, entertainment and dining, and thus have redirected those funds to making their homes more enjoyable as they hunker down to spend more time there.
In addition, Home Depot’s status as an essential retailer has meant not only that its stores can stay open, it can disproportionally benefit as consumers consolidate their trips and spend more when they do go out. That has led it to be one of the big-box winners of the pandemic.
The Analyst Expectations
Many analysts are enthusiastic about the stock’s prospects, even without the catalyst of the pandemic to support sales.
That said, investors should be wary of high expectations. Home Depot’s year-to-date rally shows that the coronavirus-related boost has hardly gone unnoticed by the market.
Analysts are looking for the company to earn $3.68 a share on revenue of $34.5 billion. That compares with EPS of $2.08 and revenue of $28.3 billion in the previous quarter. Last quarter was a bottom-line miss for Home Depot, though that was because of costs. Other than that, Home Depot’s per-share profit has beaten analysts’ estimates every quarter for the past five years.
Just over 60% of the 31 analysts tracked by FactSet rate Home Depot at Buy or the equivalent, while 35% have it at Hold. There is a single bearish call on the Street. The average analyst price target for Home Depot is $284.19, below where the stock is trading.
Home Depot shares were up 2.5% to $287.69 near midday Monday. The Dow Jones Industrial Average was down 0.2%, while the S&P 500 had gained 0.3%. Competitor Lowe’s (LOW), which reports on Wednesday, was up 2.2% to $157.71.
The company scheduled a conference call for 9 a.m. Eastern time Tuesday.
The Official Numbers
Home Depot Inc. posted much stronger-than-expected second quarter earnings Tuesday as sales far outpaced analysts’ forecasts even amid the peak of the coronavirus pandemic.
Home Depot said earnings for the three months ending on August 2, the group’s fiscal second quarter, were pegged at $4.02 per share, up 26.8% from the same period last year and firmly ahead of the Street consensus forecast. Group revenues, Home Depot said, rose 24.75% to $38.1 billion, again topping analysts’ estimates of a $34.5 billion tally.
Home Depot said same-store sales rose 23.4% — more than double analysts’s forecasts of a 10.5% gain — as coronavirus lockdowns, and soaring house prices, enticed more buyers to spend cash on hoe repair projects.
“The investments we have made across the business have significantly increased our agility, allowing us to respond quickly to changes while continuing to promote a safe operating environment. This enhanced our team’s ability to work cross-functionally to better serve our customers and deliver record-breaking sales in the quarter,” said CEO Craig Menear.
“We remain focused on continuing the momentum of our One Home Depot investment strategy that we believe will position us for continued growth over the long-term, while at the same time maintaining flexibility to navigate the demands of the current environment. Through it all, we will continue to lead with our values by doing the right thing and taking care of our people.”
Home Depot shares were marked 2.4% higher in pre-market trading immediately following the earnings release to indicate an opening bell price of $295.21 each.
Last week, the Commerce Department said U.S. retail sales rose for a third consecutive month in July, with a record dollar volume of $538 billion. The pace of gains, however, slowed to 1.2% — from an 8.4% advance in June — as consumers pared back purchases ahead of the expiry of the $600 weekly unemployment benefit, which ended in the final week of July.
August sales are likely to be further impacted by the fading support, as well as the fact that some 31 million Americans remain out of work due to the coronavirus downturn and the slow reopening of businesses and factories around the count.