Home Depot Earnings Preview: Housing Recovery Underway

Home Depot [[HD]] is scheduled to report their fourth quarter results before the market opens on Tuesday, February 23rd. Based on analysis from EarningsPreviews.com, Home Depot is expected to report better than expected quarterly results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $14.23 billion and EPS of $.19. This would represent a 3% decline in revenues from last year’s $14.61 billion in the same period. The current analyst consensus estimates calls for revenues of $14.06 billion and EPS of $.16.

 

Earnings Analysis

Given the positive signs of stabilization in the housing markets, we are expecting significant improvement over last quarter’s 8% year/year sales decline. Low interest rates and improving consumer sentiment appear to be drawing customers back to the HD stores.   

 

Wall Street’s consensus estimates for fiscal 2011 appear to be too conservative. Severe winter conditions across much of the nation may weigh on first quarter results. However, that could result in pent-up demand as we enter the key spring and summer months.

 

Stock Performance

In 2009, Home Depot shares gained over 25% and the stock outperformed the 19% gain in the Dow Jones industrial average. Despite the broader market selloff, Home Depot stock is also up nearly 4% since the beginning of 2010.

 

Valuation

Home Depot is now trading at 17.5x consensus 2011 EPS estimates. This is a slight premium to the relative valuations of their peer group. Home Depot offers investors a nice 3% dividend yield and upside earnings potential as the housing market continues its recovery.  

 

Recommendation: Buy with an $35 price target

 

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