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Is Home Depot (HD) Poised to Beat Earnings Estimates in Q3?


The Home Depot, Inc. HD is slated to report third-quarter fiscal 2018 results on Nov 13, before the opening bell. In second-quarter fiscal 2018, the company delivered a positive earnings surprise of 7.4%.

Moreover, the company has a spectacular positive earnings surprise record for five years now. For the trailing four quarters, the company delivered an average positive earnings surprise of 3.6%. This improvement can be attributed to spectacular growth strategies, including an interconnected strategy and focus on Pro customers. Let’s see how things are shaping up prior to this announcement.

What to Expect

The question lingering in investors’ minds now is whether Home Depot will be able to post positive earnings surprise in the quarter to be reported. The Zacks Consensus earnings estimate for the fiscal third quarter is pegged at $2.27 per share, up nearly 23.4% from the year-ago quarter. However, the r earnings estimate for the fiscal third quarter moved down in the last 30 days. The Zacks Consensus Estimate for revenues stands at $26.3 billion, reflecting a year-over-year increase of 4.9%.

While the stock has declined 8.1% in the past month, it marks an outperformance compared with the industry’s fall of 9.8%.

Factors at Play

Robust earnings history, focus on Pro Customers, strength in core business and a disciplined capital strategy have been the key pillars for success of Home Depot. The company remains keen on building its interconnected capabilities by upgrading its digital assets in order to provide a more seamless experience to customers. Meanwhile, it has been benefiting from its solid focus on Pro Customers.

Further, management reaffirmed its long-term financial targets for fiscal 2020 while updating the return on invested capital target to reflect impacts of Tax Cuts and Jobs Act of 2017. Management also plans to accelerate investments in the next three years to boost customers’ experience and shareholder value.

Moreover, Home Depot has been posting sturdy results for a long time, with steady improvement in revenues and earnings per share. The company has delivered positive sales surprise in seven out of the last eight quarters. In the fiscal second quarter, results gained from a rebound in the seasonal business that impacted sales in the fiscal first quarter and the solid execution of its team of store associates, merchants, suppliers, and supply chain. Further, the company retained its five-year-long trend of beating earnings estimates.

Though Home Depot delivered gross margin growth of nearly 30 bps in second-quarter fiscal 2018, it included about a 16 bps negative impact from higher transportation and fuel costs in its supply chain. Further, the company slightly trimmed its gross margin forecast for fiscal 2018 to about a 41 bps expansion due to higher-than-anticipated transportation costs.
Notably, commodity cost inflation in various categories, including rising raw material and transportation costs as well as recently enacted tariffs, are likely to pressure margins.

Given the above iterations, we would wait and see what this home improvement giant has in store for the upcoming earnings release.

What the Zacks Model Unveils

Our proven model does not conclusively show that Home Depot is likely to beat earnings estimates this quarter. This is because, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Home Depot currently has an Earnings ESP of -2.81% and a Zacks Rank #3. The company’s negative Earnings ESP, with favorable Rank, makes surprise prediction difficult.

Stocks With Favorable Combination

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

Nordstrom Inc. JWN has an Earnings ESP of +16.90% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kohl’s Corp. KSS has an Earnings ESP of +0.35% and a Zacks Rank #2.

L Brands Inc. LB has an Earnings ESP of +10.00% and a Zacks Rank #2.

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