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The Home Depot, Inc. Q4 Earnings Preview: All It Needs Is A 4% Comp

 February 22, 2013 11:15 AM

The Home Depot, Inc. (NYSE: HD) is set to report fourth-quarter financial results on Feb.26, and the numbers are expected to be strong given the ongoing rebound in the housing market.

The results of Dow component Home Depot are keenly watched across the industry to get a glimpse of the housing market and the performance of other companies related to the sector.

Wall Street expects the Atlanta, Georgia-based Home Depot to earn 64 cents a share, according to analysts polled by Thomson Reuters. The consensus estimate implies an increase of 28 percent from 50 cents it earned last year. For the full-year, analysts expect earnings of $3.04 a share, up from $2.47 a share prior year. Home Depot sees 2012 earnings of $3.03 a share.

[Related -The Home Depot, Inc. (NYSE:HD): More Room For Improvement]

Home Depot earnings have managed to beat Street view thrice in the past four quarters, and the consensus estimate have improved by 1 cent over the past 90 days. In the past 30 days, four analysts have raised their quarterly earnings view while an analyst reduced their outlook.

Quarterly revenues are estimated to increase 10.4 percent to $17.67 billion from $16.01 billion last year. For the full year, sales are projected to rise 5.4 percent to $74.19 billion while the company expects 2012 sales to grow 5.2 percent from the prior year.

Investors expectations are high on Home Depot earnings given an improvement in the housing market and the company's strong growth profile versus peers. Buy side expectations are vying for a 4.1 percent comp in the fourth quarter versus the consensus of 3.9 percent.

[Related -A Pause In The Action]

Comparable-store sales is a key retail industry performance metric to gauge activity at store locations that have been open for at least a year. At the end of the third quarter, the company operated a total of 2,250 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.

Meanwhile, Home Depot could potentially update its buyback outlook on the ability to add more leverage, which would be positively received.

"We have $18.3b in buybacks built into our model for FY13 – FY16, up from our 4-year run rate of $17.6b for FY12 – FY15," Deutsche Bank analyst Mike Baker wrote in a note to clients.

Earlier this month, Home Depot said it has begun filling more than 80,000 seasonal positions to assist customers during the company's busiest selling season, an indicator that business trends are picking up. The company said that this year, it is hiring ten thousand more spring associates than it did last year to support anticipated sales growth in the spring.

The National Association of Realtors (NAR) said existing home sales rose 0.4 percent to a seasonally adjusted annual rate of 4.92 million in January after falling 1.2 percent to a downwardly revised 4.90 million in December. This is a positive development for companies such as Home Depot, which sells building materials, home improvement, lawn and garden products and provides installation services.

The report showed that total housing inventory fell 4.9 percent to 1.74 million existing homes available for sale at the end of January compared to 1.83 million for sale at the end of December.

However, new residential construction in the U.S. fell by more than anticipated in the month of January, according to a report released by the Commerce Department. The report said housing starts fell 8.5 percent to a seasonally adjusted annual rate of 890,000 in January.

The pullback by housing starts came after new residential construction reached the highest level in over four years in December. Despite the monthly decrease, housing starts in January were still up by 23.6 percent from the rate of 720,000 in the same month a year ago.

On the positive side, the report also showed that building permits, an indicator of future housing demand rose 1.8 percent to an annual rate of 925,000 in January from the revised December rate of 909,000.

For the third quarter, Home Depot reported net earnings of $947 million or 63 cents a share, higher than $1.36 billion or 60 cents a share in the prior-year quarter. Excluding items, it earned $1.11 billion or 74 cents a share, which came in above Street view of 70 cents.

Net sales for the quarter grew 4.6 percent to $18.13 billion and topped Wall Street analysts' consensus estimate of $17.93 billion. Comparable-store sales for the third quarter grew 4.2 percent, and comparable sales for U.S. stores were positive 4.3 percent.

Shares of Home Depot had a good run last year gaining 38 percent and trades at 21 times te 2013 consensus earnings estimate and 18 times the 2014 estimate. Shares have traded between $46.12 and $68.15 during the past 52-weeks.

Wall Street analysts, in general, have a positive opinion on Home Depot stock, with 17 out of the 29 analysts covering it recommending "buy" or "strong buy." The remaining 12 analysts rate the stock as "hold," while there were no "sell" rating on the stock.

On Feb.26, coinciding with Home Depot results, the Commerce Department is scheduled to release a separate report on new home sales for the month of January. So, if the new home sales shows improvement, it is likely to boost investor sentiment and Home Depot shares.



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