If analysts are right about The Home Depot (HD), the world’s largest home improvement retailer should post a profit of 89 cents per share on Monday, up from the year-ago figure of 74 cents. That Home Depot earnings result is expected to come on the heels of revenue of $19.17 billion, up from the year-ago figure of $18.13 billion.
Home Depot Earnings History
Home Depot earnings have topped estimates in 13 of the past 14 quarters. All of those quarters have showed revenue growth, and all of them showed income growth.
For perspective on just how reliable and impressive HD stock is for its owners, per share income for the company has grown every year, from 2009’s $1.57 to what will likely be a total of $3.70 this fiscal year. Revenue for Home Depot has grown from $66.17 billion in 2009 to what likely will be $77.68 billion for this year.
Yes, the Home Depot earnings growth trend is as ridiculously strong as the sales growth trend is, and yes, the company should maintain that strong trend into 2014. For next year, the Home Depot earnings figure should roll in at $4.37 per share, on the heels of $82.43 billion in revenue.
What Really Matters for HD Stock
As has been the case with so many other stocks this earnings season, though — and homebuilder stocks in particular — the Home Depot earnings numbers aren’t going to be what most HD stock owners will be interested in. More important at this point will be what the company says regarding the potential slowing in the housing market.
Although new home sales and new construction data had been trending higher through the first half of the year, both have been shaky during the second half of 2013. The MBA purchase application index (of mortgage applications) is also slumping. While it’s the slump has yet to rake a measurable toll in any company’s earnings yet, the homebuilding and home improvement industry has been openly cautious about a slowdown in construction, as a prolonged slump would most assuredly impact Home Depot earnings totals headed into 2014.
With all of that being said, although Home Depot is an earnings growth machine, that doesn’t necessarily make HD stock a “buy” at its current price.
Granted, HD shares slumped in the middle of this year, reflecting the potential easing in the housing construction market. The market appears to have piled into Home Depot stock over the past few days, however, in anticipation of solid earnings results from the home improvement company. The end result is a trailing P/E of 23.4 and a forward-looking one of 18.1.
HD stock has been priced at frothier valuations. It’s even rallied into higher valuations.
However, given the market’s potential worry that the home-construction market could still hit a soft patch, there’s a potential “buy the rumor, sell the news” situation developing here.
Home Depot earnings ironically might be the prod for a pullback, making HD stock something to avoid until the earnings chips fall where they may.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.