Is Home Depot (HD) Likely to Deliver Earnings Beat in Q2?

The Home Depot, Inc. HD is slated to report second-quarter fiscal 2020 results on Aug 18, before the opening bell. In the last reported quarter, the company delivered a negative earnings surprise of nearly 8%. However, its earnings outpaced the Zacks Consensus Estimate by 0.8%, on average, in the trailing four quarters.

The consensus estimate for fiscal second-quarter earnings of $3.38 per share suggests growth of 6.6% from the year-ago period’s reported figure. Moreover, the consensus estimate has moved up nearly 1% in the past seven days. The consensus mark for revenues is pegged at $33.31 billion, indicating an increase of 8% from the figure reported in the year-ago quarter.

Key Factors to Note

Despite the impacts of the coronavirus outbreak, Home Depot has been benefiting from strong interconnected presence, which has helped it adapt to changing customer preference. The company has quickly adapted to consumer needs, providing contactless curbside pickup and other fulfillment services, adhering to the safety protocols. This has helped boost comps performance across stores. The company’s strong online presence is expected to have aided performance in the fiscal second quarter as well.

The Home Depot, Inc. Price and EPS Surprise


The Home Depot, Inc. Price and EPS Surprise

The Home Depot, Inc. price-eps-surprise | The Home Depot, Inc. Quote

Driven by the COVID-19 outbreak-induced shelter-at-home orders, home improvement retailers like Home Depot have been witnessing solid demand for essentials as well as gardening and other in-house activity-related products. Additionally, companies have been witnessing strong COVID-19-related demand for cleaning products along with other necessary home appliances such as refrigerators, freezers and DIY home repair products. Also, other home improvement and DIY maintenance projects have been gaining prominence as customers continue to stay at home. Such strong demand for the products is likely to get reflected in Home Depot’s performance in the to-be-reported quarter.

However, the company predicts that there will be a significant pressure in demand for products requiring installation services like kitchen, and bath and flooring. Moreover, it is likely to have witnessed additional costs to provide enhanced payments to hourly associates, including expanded paid time-off, additional paid time-off for older associates who are at high risk, weekly bonuses for store and distribution center workers, doubled overtime pay, and extended dependent care benefits. These enhanced benefits are anticipated to get reflected in expense deleverage during the to-be-reported quarter, considerably impacting both margins and the bottom line.

Nonetheless, the robust demand for the company’s products, and efficient online and in-store capabilities are likely to have aided performance in the fiscal second quarter.

Zacks Model

Our proven model predicts an earnings beat for Home Depot this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Home Depot has a Zacks Rank #3 and an Earnings ESP of +10.19%.

Other Stocks With Favorable Combinations

Here are some other companies you may want to consider, as our model shows that these also have the right combination of elements to post an earnings beat:

Dollar General Corporation DG currently has an Earnings ESP of +2.90% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lowes Companies, Inc. LOW presently has an Earnings ESP of +11.01% and a Zacks Rank #3.

DICK’S Sporting Goods, Inc. DKS currently has an Earnings ESP of +34.65% and a Zacks Rank #3.

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The Home Depot, Inc. (HD) : Free Stock Analysis Report
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