Buy Home Depot (HD) Stock After Strong Q3 Earnings Results?
Zacks Investment Research | Nov 13, 2018 04:22AM ET
Home Depot (NYSE:HD) reported better-than-expected top and bottom line results Tuesday morning. Maybe more importantly, the home improvement power raised its full-year earnings guidance once again. So, is now time to buy Home Depot with HD stock still down roughly 16% from its 52-week high?
Q3 Overview
Home Depot helped kick off a busy week for traditional brick-and-mortar retailers with reports from Macy’s (NYSE:M) , Walmart (NYSE:WMT) , and other giants due out later in the week. The firm posted adjusted quarterly earnings of $2.51 per share. This marked a 36.4% jump from the year-ago period and easily topped our $2.27 Zacks Consensus Estimate.
Home Depot’s Q3 revenues also beat our $26.235 billion estimate and climbed 5.1% to reach $26.302 billion. The company’s operating income hit $3.87 billion, which marked a 5.2% jump from the year-ago period. For the first nine months of 2018, revenues jumped 6.1% from $77.02 billion to $81.71 billion.
Comparable sales—which are always a vital retail metric—popped 4.8%. Meanwhile, U.S. comps jumped 5.4%. We should note that overall comps jumped 4.8% in Q2 and 5.3% in the first quarter of 2018. The company also noted on its earnings call that big-ticket sales, transactions over $1,000 that represent roughly 20% of U.S. sales, surged 9.1%. “Once again, we saw strong performance in many Pro-heavy categories as Pro sales grew faster than the company's average comp,” Home Depot EVP of merchandising Ted Decker said on HD's Q3 conference call.
Full-Year Outlook
Looking ahead, Home Depot now expects its full-year revenues to climb by approximately 7.2% in a 53-week year. The company had previously called for a 7% jump, but this falls in line with our current 7.25% growth estimate that would see HD post fiscal year revenues of $108.21 billion.
The retailer also called for fiscal 2018 comp sales to jump 5.5% above the comparable 52-week period. More impressively, Home Depot upped its adjusted full-year earnings guidance from $9.42 per share to $9.75. This would mark a roughly 33.8% climb from fiscal 2017.
Investors should, however, note that Home Depot’s updated earnings guidance includes the positive impact of roughly $8 billion in share buybacks, up from the previously-guided $6 billion.
Stock Price Movement
Now that we have covered Home Depot’s third-quarter results, it’s time to take a quick look at its recent stock performance to help us understand if HD might be worth buying right now.
Shares of HD are up roughly 7% over the past 12 months, but have slipped 5% since the start of 2018. More recently, Home Depot stock is down nearly 6% during the past month.
Get The News You Want
Home Depot stock rested at $180.30 per share through mid-afternoon trading Tuesday following its quarterly earnings release. This marks a nearly 16% downturn from its 52-week and all-time high of $215.43 per share, and sets up what could prove to be a solid buying opportunity for investors high on Home Depot right now.
We can also see that Home Depot stock has outpaced its industry over the last decade, which includes the likes of Lowe's (NYSE:LOW) , Fastenal (NASDAQ:FAST) , Lumber Liquidators (NYSE:LL) , and others. HD’s climb also crushes the S&P 500’s 215% expansion.
Valuation
Moving on, Home Depot is currently trading at 17.8X forward 12-month Zacks Consensus EPS estimates, which marks a discount compared to its industry’s 24.3X average. HD is trading above the S&P’s 16.3X, but it has traded as high as 23.7X over the last year, with a one-year median of 20X.
Home Depot is also trading not too far above its 52-week low of 17.1X. And we can see that Home Depot is trading near its five-year median of 18.5X. Therefore, HD’s valuation picture is hardly stretched at this time.
Bottom Line
Home Depot shares have performed very well over the last decade and its growth outlook appears strong after it posted solid top and bottom line Q3 beats. We also can’t forget that Home Depot is a strong income stock, which helps it look more attractive amid our recent market pullback.
More specifically, Home Depot has lifted its quarterly dividend consistently over the last few years. HD has paid a quarterly cash dividend of $1.03 per share in 2018, which marked a nearly 50% jump from 2016’s $0.69 and a 16% climb from 2017’s $0.89.
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