Earnings Preview for Home Depot (HD) 2Q 2011
Overview
Home Depot (HD) is expected to report 2Q 2011 earnings before the opening bell on Tuesday, August 16. The home improvement giant is expected to report earnings at approximately 6:00 a.m. EST and follow with a conference call at 9:00 a.m. The results follow Monday’s results from rival Lowe’s (LOW). Home Depot, for its part, is a member of the Dow Jones Industrial Average and is widely seen as a play on the index futures. Coming into the earnings, Home Depot appears to be the preferred name in the home improvement space among Wall Street analysts.
Outliers & Strategy
- Key Measures:
- Adjusted Earnings Per Share (EPS) & Non GAAP Earnings Per Share (EPS)
- Revenues: Revenues are seen coming in close to $20 bln.
- Earnings Per Share (EPS) Guidance (FY2011): Home Depot previously said it expects diluted EPS from continuing operations to be up approximately 11.4% to $2.24, excluding the impact of future share repurchases, up from the prior outlook of $2.20.
- Back in May, Home Depot also confirmed that it expects fiscal 2011 sales will be up approximately 2.5% from 2010.
- Home Depot is expected to earn $0.83 per share (range is $0.80 to $0.91) (Source: Yahoo! Finance). Revenues are expected to reach $19.69 bln, up 2.8% from the prior-year period.
- According to Revere Data (www.reveredata.com), the following companies derive more than 25% of their revenues from Home Depot: Q.E.P. Co (QEPC), The Scotts Miracle-Gro Company (SMG), and Universal Forest Products (UFPI).
- Recently tepid housing and consumer sentiment data does not suggest Home Depot will deliver blowout results.
Recent News
- 08/12: Piper Jaffray reiterated a Neutral rating and $39 target on Home Depot. The firm suggests that Home Depot saw improved traffic trends in the 2Q relative to the 1Q, but remains concerned over developments in the housing market. Benzinga.com
- 06/23: J.P. Morgan reportedly believes Home Depot is outperforming Lowe’s from a sales perspective. Benzinga.com
- 06/21: Home Depot announced that its board of directors declared a first quarter cash dividend of 25 cents per share.
- 06/15: Jefferies lowered estimates on Lowe’s and Home Depot, but continues to favor HD. Benzinga.com
Technical Review
Home Depot shares are off about 20% from the late July highs near $37, while the 20-Day SMA crossed below both the 50-Day SMA and 200-Day SMA this past week. The Relative Strength Index (RSI) slipped toward 20 (a level near 30 is general considered oversold), while the MACD is pointed downward and at depressed levels. Holding the recently tested 28-level is pretty significant as it represents a support/resistance level going back to late 2009. Combine that with the oversold signals generated over recent weeks and Home Depot could be poised for a rebound. Holding the $30 level near-term may set up for a return back toward the June lows near $33. (Chart courtesy of StockCharts.com).
Summary
Home Depot shares are off sharply over the past month given all the pessimism surrounding the housing market and the broader economy. Despite those fears, however, reports suggest Home Depot is aggressively taking market share from Lowe’s and recovering from a tepid 1Q, while the company is buying back shares and trades at a mere 14.4x earnings, a discount to the 5-year average of 15.6x and just 0.7x sales. Home Depot also pays a 3.3% dividend yield, an attractive component given the current market climate.
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