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Home Depot earnings: Hurricanes expected to give retailer an earnings boost

Analysts are bullish about Home Depot’s earnings and growth potential

The Home Depot Inc. is slated to report third-quarter earnings on Tuesday before the opening bell and hurricanes Harvey, Irma and Maria are likely to show up.

KeyBanc Capital Markets analysts think the quarter will get a boost from “hurricane-related demand,” similar to the 2004 hurricane season, in which Home Depot HD, +0.76% and rival Lowe’s Cos. LOW, -0.04% got a 100 basis-point sales push after four storms struck the southeastern part of the country.

Damages this year are estimated at about $285.0 billion. Analysts noted that Home Depot has 27 stores in the greater Houston area and Lowe’s has 25.

“We believe that both Home Depot and Lowe’s could report about a 200 basis-point sales lift considering the magnitude, costs, and the concentration of damage in Florida and Texas, the two key markets for Home Depot and Lowe’s,” KeyBanc wrote in a note.

KeyBanc rates Home Depot stock sector weight.

The stock has an average overweight rating and average price target of $173.28 from 32 FactSet analysts, equal to about 5% upside from its current trading level.

See also: Kohl’s, Macy’s lost millions to hurricane closures, but their problems run deeper

Here are some things to watch for:

Earnings: FactSet expects Home Depot to report earnings per share of $1.82, up from $1.60 last year.

Estimize, a software platform that crowdsources estimates from buy-side analysts, sell-side analysts, hedge-fund managers, academics and others, expects EPS of $1.84.

Revenue: FactSet expects revenue of $24.54 billion, up from $23.15 billion last year.

Estimize forecasts sales of $24.55 billion.

Stock reaction: Home Depot shares are up 6% for the last three months, and up 26.4% for the last year.

What to watch for:

A November 2017 pricing survey that UBS analysts conducted involving 178 items showed Amazon.com Inc. AMZN, +0.73% was 1.3% more expensive than Home Depot.

“We think this highlights that the promotional environment is stable and competitive price actions are modest,” analysts said.

UBS also believes that warmer temperatures in September and October helped home improvement retailers, making more outdoor projects possible.

UBS analysis showed consumer spending was “strong” at these retailers during the third quarter.

UBS has a buy rating on Home Depot and Lowe’s stock.

“We see little change to the story, as the company continues to benefit from healthy demand trends, a steady recovery across its markets, increasing traction with Pros, strong omnichannel growth, and numerous operational initiatives,” wrote Credit Suisse analysts in a note following meetings with Home Depot executives.

Analysts led by Seth Sigman said the company has the opportunity to maintain the double-digit EPS growth it needs for the stock to outperform. UBS rates Home Depot shares outperform with a $171 price target.

KeyBanc analysts said Home Depot is at a lower risk from e-commerce in the near-term and has the scale for growth investments.

“Nevertheless, potentially echoing other retailers, we question if Home Depot will need to increase its investments given accelerating e-commerce sales more broadly and look to the December analyst day for more details,” analysts wrote.


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