Earnings Preview: Home Depot

Home Depot (HD) reports earnings tomorrow. Wall Street is looking for 67 cents a share, but I think HD has a good shot of beating that. The company has been doing well lately, and the economy is stronger than many poeple realize.
The AP takes a look at the stock.

OVERVIEW: Home Depot, the world’s biggest home improvement chain, has been on an acquisition spree this year. The company on Tuesday said it would pay an undisclosed sum for home improvement loan provider EnerBank USA from CMS Energy Corp., a Michigan-based energy holding company.
In January, Home Depot announced it would pay $3.2 billion to acquire Hughes Supply Inc., a distributor of construction, repair and maintenance products, a deal that closed in March. The Hughes acquisition, the biggest in Home Depot’s history, doubles the size of its segment serving business customers like homebuilders, contractors, municipalities and maintenance professionals.
Recently there were reports that Home Depot was interested in acquiring a stake in Orient Home, a home improvement chain in China, though the company has not commented on any talks.
BY THE NUMBERS: Wall Street expects Home Depot to post earnings of 67 cents per share, the mean estimate of 21 analysts surveyed by Thomson Financial, on $21.52 billion in projected sales. In the first quarter of 2005, the company reported profit of 57 cents a share on sales of $18.97 billion.
ANALYST TAKE: “We expect Lowe’s and Home Depot to stand out on the upside due to easy comparisons, favorable weather, and the lagged impact of supportive economic data points,” Merrill Lynch wrote in a May 2 client note. “We forecast 16 percent earnings per share growth to 67 cents per share on 3 percent (same-store sales). Although higher gas prices create uncertainty, we believe that demand for home improvement remains solid and that Home Depot will continue to show productivity improvements.”
WHAT’S AHEAD: Home Depot has benefited from the strong homebuilding market, which has been on a tear for the past five years, fueled by historically low interest rates that have encouraged people to spend more on home renovations. However, many analysts think demand for home improvement products could start to wane, as the housing market cools and the Federal Reserve continues raising interest rates.
STOCK PERFORMANCE: Home Depot shares recently traded around $40 a share on the New York Stock Exchange. The 52-week high was $43.98, hit in July. The stock is more or less flat so far this year.

Posted by on May 15th, 2006 at 11:31 am


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