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Management has directed much of its excess cash toward stock buybacks, but Home Depot also delivers a more generous dividend payment amounting to 55% of earnings compared to Lowe's 35% goal. Buying the stock today doesn't mean you're forced to give up earnings growth in exchange for that increasing revenue metric. Home Depot is finding ways to increase profitability despite soaring expenses.
But the gist of it is that Home Depot maintains a conservative balance sheet. This should translate into a very low risk of bankruptcy in the long term. As of Q3, Home Depot's net debt was $34.08 billion ($39.15 billion in long-term debt less $5.07 billion in cash). Over the last 12 months, Home Depot has generated $24.64 billion in earnings before interest, taxes, depreciation, and amortization . Home Depot produced $3.92 in diluted EPS during the quarter, which works out to a robust 23.3% growth rate against the year-ago period. This helped the company to top analysts' prediction of $3.41 in diluted EPS by 15%.
A safe and market-beating dividend
A-RATED STOCKS are those stocks the Big Data multi-factor models score as most probable to rise in price. The company beat consensus EPS estimates in each of the trailing four quarters. The company topped consensus revenue estimates each time over this period.
The Zacks Consensus Estimate has changed +0.8% over the last 30 days. For Home Depot, the consensus sales estimate for the current quarter of $37.9 billion indicates a year-over-year change of +2.9%. For the current and next fiscal years, $156.53 billion and $160.28 billion estimates indicate +3.6% and +2.4% changes, respectively. As a result, I believe that the stock has appreciated too much in too short of a period of time. For instance, Home Depot's forward P/E ratio of 25.2 is considerably higher than the S&P 500's forward P/E ratio of 21.3. The stock undoubtedly deserves to be trading at a premium to the S&P 500, but I would argue the current 18% premium is a bit too much.
Cash Flow Statement
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 for Home Depot. For the next fiscal year, the consensus earnings estimate of $17.37 indicates a change of +4.4% from what Home Depot is expected to report a year ago. For the current fiscal year, the consensus earnings estimate of $16.64 points to a change of +7.2% from the prior year. For the current fiscal year, the consensus earnings estimate of $16.56 points to a change of +6.6% from the prior year.
Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, Home Depot is rated Zacks Rank #3 . For the next fiscal year, the consensus earnings estimate of $17.34 indicates a change of +4.7% from what Home Depot is expected to report a year ago.
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Consensus Price Target is the stock price analysts expect to see within a period of 0-18 months. Data, information, or opinions contained in Quantalytics in any form give no consideration to any particular individuals' investment needs or objectives, nor do they consider any individuals' financial condition. Consequently, any such data, information, or opinions do not in any way represent a personal recommendation to any individual investor or any entities, whatever the type. Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else.
That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock. On the other hand, investors don't have a clear idea of how Home Depot's business will perform in an era of high -- and rising -- interest rates. Earnings and sales trends might be pressured for several years if home sales volumes fall too quickly. First, Home Depot increased its overall comparable-store sales by 6.1% year over year.
The Home Depot Financial Summary
Forbes partnered with market research company Statista to identify the employers liked best by former military in our annual ranking of America's Best Employers For Veterans. Leveraging Big Data multi-factor models, the Q-Factor Score is assigned to each stock ranging from “Top Buy” to “Top Short”. The Q-Factor Score represents an expectation for how a stock will perform in a given month. Home Depot is graded B on this front, indicating that it is trading at a discount to its peers. Click here to see the values of some of the valuation metrics that have driven this grade. In this department, in part because of its stronger position in the professional contractor niche.
This was the result of the fact that 12 out of Home Depot's 14 merchandising departments posted positive comps during the quarter, according to COO Ted Decker's opening remarks during the company's Q earnings call. Decker noted that the only two departments that didn't grow comps were indoor garden and lumber (comps were down by high single-digit percentages year over year for the department). Compared to the Zacks Consensus Estimate of $43.35 billion, the reported revenues represent a surprise of +1.03%. Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
Such data, information, or opinions are not an offer to sell or to buy, or a solicitation to buy or sell any securities. Any forward looking estimates presented by Quantalytics may prove to be incorrect and not be realized. Any data, information, or opinions expressed in any form may change without notice.
No investment decision can be efficient without considering a stock's valuation. Whether a stock's current price rightly reflects the intrinsic value of the underlying business and the company's growth prospects is an essential determinant of its future price performance. While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues.
The rising operating margin seen in the chart is a good sign of pricing power, and it hints at other major competitive advantages. Because Home Depot's payout ratio will be 42.7% for this year based on the average analyst estimate of $15.46 in diluted EPS, the stock has plenty of room to keep growing its dividend going forward. F-RATED STOCKS are those stocks our quantitative multi-factor models score as most probable to fall in price. B-RATED STOCKS are those stocks our Big Data multi-factor models score as moderately probable to rise in price. While these stocks are ranked ATTRACTIVE, we believe the best buys for long positions are TOP BUYS which are A-rated stocks.
The data, information and opinions presented have been obtained or derived from sources believed by Quantalytics to be reliable. Quantalytics does not make any representations as to their accuracy or completeness. Home Depot reported revenues of $43.79 billion in the last reported quarter, representing a year-over-year change of +6.5%. For the current quarter, Home Depot is expected to post earnings of $4.10 per share, indicating a change of +4.6% from the year-ago quarter.
Q.ai is the trade name of Quantalytics Holdings, LLC. Q.ai, LLC is a wholly owned subsidiary of Quantalytics Holdings, LLC (“Quantalytics”). Quantalytics is not a registered investment adviser, brokerage firm, or investment company. Any data, information, or opinions presented by Quantalytics are for general information purposes only.
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