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Home Depot dissappointed with it's three quarter earnings report, sending $HD down over 5%, no mean feat with $SPX and $DJIA at ATH. The Home Depot analyst update thus has low analyst expectations

Home Depot Department

THE HOME DEPOT INVESTOR & ANALYST CONFERENCE

Wednesday, December 11th, 2019 9:00 am ET - This event will be webcast.

There have been many reasons given by analysts on Hime Depots performance. One they don't touch on generally is both Lowes $LOW and Home Depot have had outside earnings boosts from disaster rebuilds over the past few years. We have had events like Hurricane Harvey in that period. This year we have had smaller disasters, seems good for the people not so much for home improvement companies.

The lower numbers is despite U.S. housing starts having rebounded in October by 3.8%, and permits for future home construction jumped to a more than 12-year high. Home Depot also said it is managing to lessen the blow from higher tariffs.

Analysts will be also looking for updates on Home Depot’s B2B website, which was created mostly for the company’s professional contractor customers is behind the curve. Around 45% of Home Depot’s business comes from its professional customers, according to Jonathan Matuszewski, an analyst at Jefferies. Lowe’s has been trying to gain ground in this space, but still only gets about 20% to 25% of its sales from this group, he said.

Q3 Earnings Miss

  • Earnings per share: $2.53, adjusted, vs. $2.52 expected
  • Revenue: $27.22 billion vs. $27.53 billion expected
  • Same-store sales growth, global: 3.6% vs. 4.7% expected

Forecasts were from a survey of analysts by Refinitiv:

During the quarter, Home Depot said its average customer ticket was $66.36, which was higher than it saw in the quarter a year earlier. Sales per square foot also rose to $449.17 from the year-earlier period.

Q4 Sales Forecast Lowered

For the fiscal year, it lowered its sales forecast to 1.8% growth, down from a prior estimate of 2.3%. The company also cut its same-store sales estimate for the fiscal year, to an increase of 3.5%. Previously, it forecast 4% growth.

The outlook for earnings per share remains unchanged

“As expected during the third quarter, we saw increased costs arising from tariffs,” Ted Decker, executive vice president of merchandising said. “Our merchants, finance, and data analytics teams are doing an incredible job mitigating cost impacts.” Lumber prices, which had hurt its performance in the second quarter, remained depressed compared to last year. Chief Financial Officer Richard McPhail said the lower prices hurt same-store sales growth by $175 million in the quarter.

Analysts Outlooks on Home Depot

Wedbush

Analysts at Wedbush forecasts Home Depot is likely to cut its 2020 revenue outlook amid recent disappointments in near-term guidance and cyclical pressures.

Credit Suisee

Over at Credit Suisse the feeling is similar. The investment bank in a note said; "We expect a generally positive tone, but after an overly aggressive outlook provided last year, a reset seems needed and a return to a more conservative stance makes sense; HD has a long track record of under-promising/over-delivering, which has served it well,"

Oppenheimer

Analyst Brian Nagel On CNBC’s “Squawk Box.” after earnings said he attributed the sales miss to an internal company issue, which he noted is rare for Home Depot, rather than a miss due to economic headwinds, tariffs or lumber price deflation. “The backdrop of home improvement was quite good,” Nagel said. “The lumber price issue is not as big a deal anymore, weather has been favorable and then we have this, what I have been really been excited about, is this improving overall housing environment.”

Jefferies

Jefferies analysts Jefferies say the industry remains strong and pointed to improving home affordability, lower interest rates, aging baby boomers spending money on remodeling, millennials entering the housing market, and product innovation.

Home Depot has work to do, thought he cyncial among us may argue it won;t take much to build a turnaround narrative in a stock mania. For the numbers however HD needs comparable sales growth of 5% to 9% in 2020 to meet its three-year target set in 2020.

Live From The Pit

From The TradersCommunity Research Desk

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