The Home Depot, Inc. (HD) hold its Fourth Quarter & Fiscal 2019 Earnings Conference Call at 9 a.m. Eastern on Tuesday, February 25. Wall Street believes the do it yourself (DIY) retailer will post consensus sales of $25.77 billion with earnings per share (EPS) of $2.11, implying an 8.8% net profit margin. Last year, the holiday quarter’s net profit rate was 8.85%.
Our earnings’ model suggests Home Depot’s EPS will exceed the street’s expectation and deliver $2.13. According to or Google Trends analysis for the keywords “Home Depot Hours” and “The Home Depot” revenue could be on target or better, perhaps much better than anticipated.
As is, the consensus top line number of $25.77 billion is 2.7% less than last year’s $26.49 billion. That’s right in line with the year over year Google searches for “Home Depot Hours,” which we feel is good proxy for people who plan on visiting the home repair retailer in the immediate term. “Home Depot Hours” queries fell 2.6% during this year’s fourth quarter compared to a year ago.
On the other hand, searches for “The Home Depot” climbed 6.06% in the company’s 2019/2020 fourth quarter versus the same timeframe in 2018/2019. If “The Home Depot” is a better representation of traffic and sales than “Home Depot Hours,” then revenue would ring in at $28.1 billion, considerably more than Wall Street’s highest estimate of $26.23 billion. At Wall Street’s 8.8% net profit margin, EPS would be $2.26, using a share count of 1.094 billion.
Shares of HD would likely spike higher under “The Home Depot” scenario; however, these numbers are likely to be too optimistic/unrealistic. But… what if we split the difference between the two keywords results?
If revenue and EPS meet midway between “Home Depot Hours” and “The Home Depot,” the result would be sales of $26.95 billion and earnings per share of $2.17 at the projected margin rate of 8.8%.
The second quarter of 2018 was the last time Home Depot management delivered a bullish revenue surprise close to the magnitude of our middle scenario. Recently, the company’s reported sales numbers were slightly lower than predicted, missing the mark in three of the last four quarter by an average of 0.33%. Using last year’s average bearish top line surprise performance, revenue would be $25.68 billion for the fourth quarter, net income $2.26 billion and EPS of $2.07.
Now we have our own expected range for Home Depot’s fourth quarter results.
Worst Case: revenue of $25.68 billion and EPS of $2.07
Best Case: revenue of $26.95 billion and EPS of $2.17
Our Projected Case: revenue of $26.48 billion and EPS of $2.13
How the stock reacts to earnings is what shareholders are most concerned with. In the last five years, investors pushed HD lower 12 times in the days around earnings and bid it higher eight times. On average, the stock lost $3.65 when dropping and adding $3.85 when popping.
Looking at Home Depot’s stock chart, shares could fall to $235ish if Home Depot’s fourth quarter report card is OK but forward guidance is blah. If earnings are close to our worst-case scenario and guidance is at or below current expectations, $220ish or maybe even the 50-day average around $215 could be in play.
Should Tuesday’s news come close to our Best Case, shares have plenty of room to pop as HD is just a hair below its 52-week high of $245.50. At our Projected Case, the stock probably moves higher and inline with its average move of $4 higher.