Home Depot (HD),the world’s largest home-improvement company, will announce its second-quarter earnings on August 18, 2020. As of August 14, 2020, the stock has gained 28% YTD as compared to the S&P 500's 3.5% gain YTD, outperforming the index by approximately 22.68%. Over the past month, shares of the company registered a gain of 9.55%, beating the sector’s gain of 6.97% and the S&P 500's gain of 6.66%.
Analysts predict that the company will report earnings per share of $3.38, up 6.6% from the same quarter last year. Revenue for the quarter is expected to jump by 8% to $33.31 billion from Q2 2019. For the full year, the analysts estimate a dip of 1 percent in its EPS from last year, which translates to $10.15 per share, whereas a rise of 5.26 percent in revenue is expected from the previous year to $116.02 billion.
Financial Ratios and Key Metrics:
Forward P/E ratio of Home Depot is 26.76, whereas the industry averages a Forward P/E of 18.51. This shows a premium valuation of HD as compared to its peers in the industry. At its most recent share price, Home Depot holds a PEG ratio of 2.34 against the industry average of 1.43. Sales to total assets ratio, which measures the efficiency of asset-utilization with respect to sales, reveals that HD utilizes its assets efficiently with a ratio of 2.09. This signifies that for each dollar of asset, the company is generating $2.09 worth of sales. The S/TA industry-average is 1.75.
Impact of the Pandemic:
The coronavirus pandemic and the resultant lockdown led to a surge in demand for home-improvement items and essentials because of the government's pandemic relief monetary aid to the public, which led to higher disposable incomes. Its second-quarter results will likely reflect this huge demand in the shape of higher revenues. However, HD might see its second-quarter operating margin recede further, which was at 13.6% in the first quarter, owing to an increased spending on expanding its online network and coronavirus-related precautionary measures. The company had been targeting to bring the metric to 15%.
Analysts of prominent financial services companies Wells Fargo and Morgan Stanley have also jacked-up their target prices of HD stock, showing upbeat sentiments about the stock and the company's earnings. Wells Fargo has set the target price for HD to $300, whereas Morgan Stanley has revised their target price for HD stock to $285.
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