Should You Buy Home Depot Stock At $409?

[Updated: 11/23/21] Home Depot Stock Update

Home Depot (NYSE: HD) recently reported its Q3 report, wherein revenues were inline and earnings were above our estimates. The company reported revenues of $36.8 billion, 6% above the consensus estimate of $34.7 billion. The home improvement retailer’s earnings per share (EPS) came in at $3.92, ahead of the $3.37 consensus and $3.30 per Trefis estimates. While Home Depot’s revenues jumped 10% year-over-year (y-o-y), its total comparable-store sales increased 6.16% in Q3 that smashed the consensus expectation of a gain of 2.2%. To add to this, comparable sales in the U.S. were up 5.5% vs. +0.9% consensus. Home Depot customers upped their spending habits when they visited stores with the average ticket up by 12.9% to $82.38 during the quarter. However, the retailer’s total transactions were down by 5.5% y-o-y to 428.2 Mil.  On the bottom line, the company’s net earnings were up 20.3% y-o-y to $4.13B. It should be noted that unlike many companies in the retail sector, Home Depot did not dramatically highlight supply chain and labor headwinds.

We have updated our model following the Q3 release. We now forecast sales to be $150.5 billion for the full year 2021, up 14% y-o-y, compared to our previous estimate of 9% y-o-y growth. Looking at the bottom line, we now forecast EPS to come in at $15.57, compared to our earlier estimate of $14.30. So far in fiscal 2021, Home Depot saw sales from professional customers outpace those of the DIY customers, and we expect this trend to continue into the holiday season as well. Given the changes to our revenues and earnings forecast, we have revised our Home Depot Valuation at $410 per share, based on $15.57 expected EPS and a 26.4x P/E multiple for fiscal 2021 – almost in line with the current market price. We believe that the company’s stock is fairly priced at current levels.

[Updated: 11/12/21] Home Depot Q3 Pre-Earnings

Home Depot (NYSE: HD) is scheduled to report its fiscal third-quarter results on Tuesday, November 16. We expect the company’s stock to likely trade lower due to its revenues and earnings falling short of market expectations. In the upcoming quarter, risks regarding the growing Delta variant outbreaks could increase the costs in terms of sanitization, supply chain, and labor. This could, in turn, pinch its net profit in Q3 to a little extent. Our forecast indicates that Home Depot’s valuation is $348 per share, which is 5% lower than the current market price. Look at our interactive dashboard analysis on Home Depot’s Pre-Earnings: What To Expect in Q3? for more details.

(1) Revenues expected to be slightly below the consensus estimates

Trefis estimates Home Depot’s Q3 2021 revenues to be around $33.6Bil, slightly below the consensus estimate of $34.7 Bil. While Home Depot’s Q2 revenues jumped 8% year-over-year (y-o-y) to $41.1 billion, 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. 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.

We now forecast Home Depot Revenues to be $144.3 billion for the full year 2021, up 9% y-o-y. Looking at the bottom line, we now forecast EPS to come in at $14.30. The company did not provide any outlook due to uncertainty around the Covid pandemic.

2) EPS to likely miss consensus estimates slightly

Home Depot’s Q3 2021 earnings per share (EPS) is expected to be $3.30 per Trefis analysis, marginally lower than the consensus estimate of $3.37. In Q2, the company’s operating margin came in as a surprise at 16.1% of sales, compared to 15.9% in the same period last year. Its EPS grew 13% y-o-y to $4.53 during this period.

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

Going by our Home Depot Valuation, with an EPS estimate of around $14.30 and P/E multiple of 24.4x in fiscal 2021, this translates into a price of 348, which is 5% lower than 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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