Home Depot (HD) stock rose smartly Tuesday after Home Depot earnings beat Wall Street estimates thanks to strength in the U.S. housing market. Home Depot stock was up around 2% by noon.
In even better news for anyone holding HD stock, the nation’s largest home improvement retailer also lifted its guidance. For the full year, Home Depot earnings are now seen rising 24% to $3.72 a share, ahead of analysts’ average estimate for Home Depot earnings to hit $3.70 in the current fiscal year.
No wonder Home Depot stock investors were cheering.
On top of that, Home Depot earnings for the most recent period rose to $1.35 billion, or 95 cents a share of HD stock, up from $947 million, or 63 cents, a year ago. Results easily topped Street forecasts. Analysts expected Home Depot earnings to hit 89 cents a share in the third quarter.
Once again, the strong results and higher Home Depot earnings outlook propelled Home Depot stock to gains of more than 2% early in the session. That jump for HD stock is a large move for a member of the Dow Jones Industrial Average.
Plus, the latest Home Depot earnings and outlook set Home Depot stock up for a strong finish to an excellent year. Indeed, as you can see in the chart below, HD stock is up 33% for the year-to-date, easily outperforming the S&P 500.
The uptick in mortgage rates since the summer stoked fears that the housing market could slow down — but there was no evidence of that in Home Depot earnings.
Strong Sales Help Home Depot Stock
Among the highlights in the Home Depot earnings report that excited HD stock investors, revenue increased 7% to $19.47 billion, easily topping the Street’s forecast of $19.18 billion.
Home Depot earnings also got a boost from sales at stores open at least a year, especially in the U.S. On a company-wide basis, sales at stores open at least a year rose 7.4% for HD, led by an 8.2% gain in the U.S.
Home Depot earnings and sales might be propelling Home Depot stock even higher, but the valuation doesn’t appear to be stretched yet. The forward price-to-earnings multiple on HD stock is essentially in line with its own five-year average, according to data from Thomson Reuters Stock Reports. So although it’s not exactly cheap, neither is Home Depot stock expensive.
That especially true given that Home Deport earnings expansion continues to support the multiple on Home Depot stock. The company’s updated outlook puts Home Depot earnings per share on track for a 17.5% gain in fiscal 2014. That makes the forward P/E of 18 for HD stock look more than reasonable.
That’s especially the case if Home Depot earnings keep growing faster than the company and the Street expect. Given that Home Depot has upped its guidance for two quarters in a row, that better-than-expected growth trajectory looks likely.
At the same time that results are improving dramatically, Home Depot earnings — not to mention Home Depot stock — will also get a tailwind from some financial engineering. The company is committed to repurchase $2.1 billion of its own HD stock in the fourth quarter.
Lowe’s (LOW), the No. 2 home improvement retailer, reports earnings on Wednesday.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.