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Headlines
- Home Depot is set to release its Q2 results on August 13, with expectations of higher revenue and earnings.
- The company's stock has remained almost flat this year due to various economic factors.
- Home Depot anticipates a slight decline in comparable sales and plans to open new stores in FY'24.
Home Depot (NYSE:HD) is scheduled to report its fiscal second-quarter results on Tuesday, August 13. The company is expected to see a marginal increase in revenues and earnings, which could positively impact its stock price. Despite being almost flat since the beginning of the year, hovering around $350, Home Depot's performance has been affected by falling lumber prices and reduced demand.
In contrast, Lowe's (NYSE:LOW) has seen a 6% increase in its stock value this year, reaching $236.
Consumer spending has shifted towards services over goods, and certain high-value discretionary categories have faced pressure. Elevated interest rates over the past two years have also stagnated the housing market. Looking ahead, Home Depot expects comparable sales to decline by approximately 1.0% in FY'24. However, the company plans to open about 12 new stores this year. A gross margin of approximately 33.9% and an operating margin of around 14.1% are anticipated for 2024, reflecting broader trends in consumer stocks.
Home Depot, with over 2300 locations, generates more sales from professional contractors compared to its rival Lowe's, providing a long-term advantage. The Federal Reserve is likely to start lowering interest rates in September, which could provide relief to potential home buyers facing high mortgage rates. Lower rates could also encourage homebuilders to increase construction activity, reducing borrowing costs and making it easier for consumers to utilize home equity lines of credit.
Consistently outperforming the S&P 500 has been challenging for individual stocks, including major players in the Consumer Discretionary sector like Amazon, Tesla, and Toyota, as well as tech giants like Google, Microsoft, and Apple. In contrast, the Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has outperformed the S&P 500 each year over the same period. HQ Portfolio stocks provided better returns with less risk compared to the benchmark index, offering a more stable performance.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, Home Depot could face a similar situation as in 2022 and 2023, potentially underperforming the S&P over the next 12 months. However, there is also potential for a strong performance if conditions improve.
Our forecast indicates that Home Depot’s valuation is $376 per share, which is almost 8% higher than the current market price. Look at our interactive dashboard analysis on Home Depot’s Earnings Preview: What To Expect in Q2 for more details.
Revenues Expected to Exceed Estimates:
Trefis estimates Home Depot’s Q2 2024 revenues to be around $43.3 billion, slightly above the consensus estimate. In Q1, Home Depot’s revenues fell 2% year-over-year (y-o-y) to $36.4 billion. Comparable sales decreased by 2.8% during the quarter, with customer transactions down 1% to $387 million and the average ticket value down 1.3% to $90.68. Sales per retail square foot dropped 3.4% y-o-y to $572.69.
EPS Likely to Surpass Estimates:
Home Depot’s Q2 2024 earnings per share (EPS) is expected to be $4.54, slightly higher than the consensus estimate. The company reported EPS of $3.63 in Q1 2024 compared to $3.82 a year ago.
Stock Price Estimate Higher Than Current Market Price:
Based on our Home Depot Valuation, with an EPS estimate of around $14.16 and a P/E multiple of 26.6x in fiscal 2024, this translates into a price of $376, approximately 8% higher than the current market price. It is helpful to see how its peers stack up. HD Peers shows how Home Depot compares against peers on key metrics. You will find other useful comparisons for companies across industries at Peer Comparisons.
