Home Depot Earnings Preview: First Quarter 2009

Home Depot [[HD]] is scheduled to report their first quarter results before the market opens on Tuesday, May 19. Based on our analysis, we at EarningsPreviews.com are expecting HD to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $15.85 billion and EPS of $.29. This would represent a 12% decrease in revenues from last year’s $17.91 billion in the same period. The current analyst consensus estimates calls for revenues of $15.79 billion and EPS of $.28. On February 24, the company provided full year 2009 guidance of a 9% decline in sales and a 7% decline in EPS.

 

While top-line sales will still likely show double-digit declines, we expect to see the rate of decline improve from the 17% decline seen in the fourth quarter. Consumer sentiment appears to have gotten more positive as the quarter progressed. And while we believe the housing markets have not yet bottomed, there has been increasing speculation that real estate is at or at least near a market bottom.

 

We view all of these as positives for Home Depot. In addition, our checks show that home remodeling projects are still a major focus for homeowners with Do-It-Yourself (DIY) types of projects gaining the most traction.

 

Share Performance

Since the beginning of the year, Home Depot’s shares are up over 8%. In 2008, Home Depot fell less than 15% as the stock outperformed the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 17x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. We believe that Home Depot’s shares are currently fairly valued. However, we would expect the stock to perform quite well as the economic environment improves.

 

Recommendation: Hold with a $23 price target.

 

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