The Home Depot, Inc. (HD) is a Trending Stock: Facts You Should Know Before You Bet On It – November 22, 2022

home depot (HD Free Report) is one of the most followed stocks by Zacks.com visitors lately. As such, it might be a good idea to review some of the factors that could impact the stock’s near-term performance.

Shares of this hardware retailer are up +11.8% over the past month, while the Zacks S&P 500 Composite is up +5.4%. The Zacks Building Products – Retail industry, which includes Home Depot, is up 14.8% over the period. The key question now is: Where could the stock head in the short term?

Although media reports or rumors of a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Revisions to earnings estimates

Rather than focusing on anything else, at Zacks we prioritize assessing the change in a company’s earnings outlook. This is because we believe the fair value of its stock is determined by the present value of its future income streams.

Essentially, our analysis is based on how sell-side analysts who cover the stock revise their earnings estimates to reflect the latest business trends. As earnings estimates for a company increase, so does the fair value of its stock. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing its price to move higher. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements.

Home Depot is expected to report earnings of $3.29 per share for the current quarter, a +2.5% year-over-year change. In the last 30 days, the Zacks consensus estimate has changed by -1.4%.

For the year-to-date, consensus earnings estimate of $16.64 suggests a +7.2% change from a year earlier. In the last 30 days, this estimate has remained unchanged.

For the next fiscal year, the consensus earnings estimate of $17.09 shows a +2.7% change from what Home Depot was expecting a year ago. Over the past month, the estimate has changed by -1.8%.

Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s near-term price action by effectively harnessing the power of earnings estimate revisions. Home Depot is rated Zack’s No. 3 (Hold) based on the magnitude of the recent consensus estimate change, as well as three other factors related to earnings estimates.

The chart below shows the development of the company’s 12-month consensus EPS estimate:

12 Month EPS

12-month consensus EPS estimate for HD _12MonthEPSChartUrl

Sales Growth Forecast

While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It’s almost impossible for a company to grow its profits without increasing its revenue over long periods of time. Therefore, knowing a company’s potential revenue growth is crucial.

In the case of Home Depot, the consensus estimate of $35.99 billion for the current quarter indicates a +0.8% year-over-year change. The estimates of $157.38 billion and $159.57 billion for the current and next fiscal year indicate changes of +4.1% and +1.4%, respectively.

Latest reported results and surprise history

Home Depot reported revenue of $38.87 billion for the most recent quarter, a +5.6% year-over-year change. EPS of $4.24 for the same period compared to $3.92 a year ago.

Compared to the Zacks Consensus estimate of $37.93 billion, reported earnings represent a surprise of +2.48%. EPS surprise was +3.16%.

The company beat consensus estimates for earnings per share in each of the last four quarters. The company beat consensus sales estimates every time during this period.

valuation

No investment decision can be efficient without considering a stock’s valuation. Whether a stock’s current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in future stock price performance.

Comparing the current values ​​of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its own historical values ​​will help determine if the stock is fair valued, overvalued or undervalued. Comparing the company versus its peers using these parameters gives a good sense of the reasonableness of the stock price.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C; etc.) is quite helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.

Home Depot is rated B on this front, indicating it’s trading at a discount to its peers. Click here to view the values ​​of some of the assessment metrics that led to this grade.

Conclusion

The facts discussed here and plenty of other information on Zacks.com might help determine whether or not the market clamor surrounding Home Depot is worth paying attention to. However, its No. 3 Zacks rank suggests that it could move in line with the broader market in the near future.



Source

Leave a Reply

Your email address will not be published. Required fields are marked *