Home Depot (HD) Up 2.8% Since Last Earnings Report: Can It Continue?

Kelly C. Gamble

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A month has gone by since the last earnings report for Home Depot (HD). Shares have added about 2.8% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Home Depot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Home Depot Q4 Earnings & Sales Beat, Fiscal 2022 View

Home Depot has posted fourth-quarter fiscal 2021 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year. The company gained from the continued strong demand for home-improvement projects, robust housing market trends, and ongoing investments. It reported robust average ticket growth amid the inflationary cost environment, boosting the top line.

Home Depot’s earnings of $3.21 per share improved 21.1% from $2.65 registered in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate of $3.20.

Net sales advanced 10.7% to $35,719 million from $32,261 million in the year-ago quarter and beat the Zacks Consensus Estimate of $34,614 million. Sales benefited from the continued robust demand for home-improvement projects.

The company’s overall comps grew 8.1%, with a 7.6% improvement in the United States. In the reported quarter, comps were aided by a 12.4% rise in average ticket, driven by high-value purchases by home builders. This was partly offset by a 3.4% decline in customer transactions. Sales per square foot improved 8.3% in the reported quarter.

In dollar terms, the gross profit increased 9.5% to $11,862 million from $10,831 million in the year-ago quarter, primarily driven by robust sales growth. This was partly offset by an 11.3% increase in cost of goods sold. Meanwhile, the gross profit margin contracted 40 basis points (bps) to 33.2% from 33.6% in the year-ago quarter.

The operating income increased 18.2% to $4,825 million, while the operating margin expanded 80 bps to 13.5%. The operating margin benefited from top-line growth, offset by gross margin contraction.

Balance Sheet and Cash Flow

Home Depot ended fiscal 2021 with cash and cash equivalents of $2,343 million, long-term debt (excluding current maturities) of $36,604 million, and shareholders’ deficit of $1,696 million. In fiscal 2021, the company generated $16,571 million of net cash from operations.

In fiscal 2021, it paid out cash dividends of $6,985 million and repurchased shares worth $14,809 million.

The board of directors increased the quarterly dividend by 15% to $1.90 per share. This equates to an annualized dividend rate of $7.60 per share. The raised dividend is payable Mar 24, 2022, to shareholders of record as of Mar 10. This marks the company’s 140th successive dividend hike.

Fiscal 2022 View

Home Depot expects the demand trends to be robust in fiscal 2022, assuming the dollar demand rate experienced in the last two quarters to continue throughout the fiscal. The company factors in its historical seasonality to calculate the sales view for fiscal 2022.

HD anticipates sales and comps growth to be slightly positive in fiscal 2022. The operating margin is estimated to be flat with the fiscal 2021 levels. Net interest expenses are expected to be $1.5 billion. It expects an effective tax rate of 24.6%. Consequently, the company estimates earnings per share growth in low single-digits for fiscal 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

At this time, Home Depot has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Home Depot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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