Home Depot Outperforms, Stock Rises

May 21, 2019
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Home Depot Inc. (NYSE: HD), the nationwide home improvement retailer, is the latest company to surprise analysts with better than expected earnings from the previous quarter.

Investors were warned about revenue declines and disappointing profits ahead of the current quarter. As the economy approaches the tail end of its growth, it would seem logical that business performance would start to contract. While there have been many companies that have seen year-over-year declines in their revenue, the actual state of the current earnings season is not as dire as many analysts had hinted at.

Home Depot Profit and Revenue Exceeded Expectations

Analysts went into this earnings season expecting that Home Depot would report first quarter revenue at $26.378 billion. The company surprised the market by instead reporting revenue of $26.381 billion, a year-over-year increase of 5.7%.

Profit also increased, with the company reporting $2.5 billion in net income, compared to $2.4 billion a year ago. This equates to earnings per share of $2.27, up from $2.08 a year ago.

In a market that is supposedly contracting and seeing headwinds, this is an impressive result.

One of the reasons for Home Depot’s impressive performance could be the fact that consumer confidence is currently so high. Real wages are up, and unemployment is at a record low. Mortgage applications have also jumped in recent months, indicating that there’s a strong home market.

When consumer confidence is high, companies like Home Depot will succeed. Even if the economy is not growing as fast as it has in recent years, it’s reassuring to see a traditional brick and mortar store turning a profit and exceeding the Wall Street estimates.

Stock Performance Year to Date

Home Depot is currently outperforming analyst expectations. Of 32 ratings reported by FactSet, 18 analysts recommend a BUY, 3 believe the stock is an OVER, and 10 rate the stock a HOLD. Just a single top analyst considers the stock to be underweight.

The average target price for the 52-week period is $206.29. If this price is achieved, it would represent a significant upside over the price today. Home Depot stock could see a confidence boost this week, thanks to the positive earnings result.

Stock has increased 11.13% year to date but is down -7.33% in the last month. With prices down today, now could be the perfect opportunity to buy.

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