Home Depot Could Hit New All-Time High on Strong Q1 Earnings

Home Depot Inc, the largest home improvement retailer in the United States, is expected to report its first-quarter earnings of $2.99 per share, which represents year-over-year growth of about 44% from $2.08 per share seen in the same period a year ago.

The home improvement retailer would post revenue growth of 21% to $34.2 billion. In the last four quarters, on average, Home Depot has beaten earnings estimates about 2%.

However, the Atlanta, Georgia-based company’s shares traded about 4% lower at $328.67 on Tuesday. The stock rose over 23% so far this year. Home Depot’s better-than-expected results, which will be announced on May 18, would help the stock hit new all-time highs.

But the stock’s performance could hinge on margins.

Analyst Comments

“We expect a 25% to 30% Q1’21 comp as top-line strength likely continued through the quarter. We model gross margin down 40 bps. For context, in Q4 lumber inflation pulled gross margin down ~30 bps and likely worsened sequentially. On SG&A, assuming the per sq ft 2-year stack holds from Q4 (+24%), SG&A should lever 360 to 400 bps. In our model, this combination produces EPS of $3.55 to $3.85 vs consensus at $2.95. While a ’21 guide was not provided, if the ’20 top-line exit rate held through ’21, HD would expect a flat to slightly positive comp and an EBIT margin of at least 14%,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“We believe trends have accelerated QTD relative to the ’20 exit rate, which means HD should be tracking above this framework. Flowing through the expected Q1 comp beat and adjusting other ’21 quarters for a decelerating 2-year stack (31%/25%/20%/20% with a 25% Q1 comp, 36%/27%/22%/20% with a 30% Q1 comp), our model produces a full year ’21 comp of 5% to 7.5%. This sets up HD for a strong “comp the comp” year. However, if this occurs, it could mean some revenue gets pulled forward from ’22, creating tougher compares.”

Home Depot Stock Price Forecast

Sixteen analysts who offered stock ratings for Home Depot in the last three months forecast the average price in 12 months of $341.36 with a high forecast of $375.00 and a low forecast of $310.00.

The average price target represents a 3.84% increase from the last price of $328.75. Of those 16 analysts, 14 rated “Buy”, two rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley raised the base target price to $340 from $320 with a high of $420 under a bull scenario and $205 under the worst-case scenario. The firm gave an “Overweight” rating on the home improvement retailer’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $355 from $330. UBS lifted the target price to $375 from $350. Wells Fargo upped the price target to $360 from $330. Citigroup increased the price objective to $375 from $288.

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