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Earnings: Analysts Expect Q3 Housing Tailwind for HD

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November 14, 2016
Stock market forecast for Home Depot in Q3.

How much home-improvement work is happening out there? Investors will get a peek into at least one portion of activity when Home Depot (HD), the world’s large home-improvement retailer, opens its Q3 books before the bell Tuesday.

“Lukewarm reports from some of the retailers’ suppliers have raised worries that the industry is nearing a peak or entering a slowdown,” Dow Jones reported last week. Even still, analysts are forecasting higher sales of hardware, plumbing, electrical and seasonal items, which account for 50% of the big-box retailer’s revenues, according to the Company Profile* tool on the thinkorswim® platform by TD Ameritrade.

In Q2, HD turned in record results, thanks to double-digit profit gains, and upped its annual earnings outlook for the second straight quarter. "We had a solid quarter, achieving the highest quarterly sales and net earnings results in company history as housing continues to be a tailwind for our business," Chief Executive Craig Menear said in last quarter’s press release.

Comparable-store sales, an important industry measure of sales at stores open longer than a year, rose nearly 5% in Q2, below the prior quarter’s 7.4% gain, but still stronger than HD’s rivals. Analysts are projecting Q3’s comparable-store sales to come in higher by 4.7%.

The company, which sells primarily to the homebuilding industry as well as do-it-yourselfers, says it has been hammering its way into other market niches like maintenance and repair operations. It’s also building its e-commerce leg with services like next-day delivery of bulk goods.

“We are instituting a high degree of change across many areas of the business,” Menear said in Q2. “With this amount of change, there will be learnings and opportunities to refine the process along the way.”

At Thomson Reuters, analysts are forecasting, on average, earnings of $1.58 a share, up 14% since last year’s profit of $1.36 a share. Topline sales are projected to climb nearly 6% to $23.07 billion from $21.8 billion a year ago.

Short-term options traders have priced in a potential share price move of 3% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform from TD Ameritrade.

Call options have been active at the 130-strike price while puts have seen activity at the 125 strike. The implied volatility is at the 39th percentile. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time. 

HD, 12m, 2015-16

FIGURE 1: NAILING IT.

HD shares are about 5% higher than they were a year ago, but more than 18% since hitting a low in early February. Shares are trading about 2.3% below their 50-day moving average. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor’s. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.