Home Depot (HD) has beaten the Zacks Consensus Estimate in each of the last five quarters by an average of 10.3%.
Home Depot is a Zacks #2 Rank stock that trades at 17x fiscal 2011 EPS estimates and 15x fiscal 2012 EPS estimates.
Business
The Home Depot, Inc., is the leading home improvement retailer with a market capitalization of $56 billion.
Strong First-Quarter Results
On May 18, Home Depot reported financial results for the first quarter of fiscal year 2011.
Revenue rose 4.3% to $16.9 billion from $16.18 billion in the year-ago period. The company earned $0.45, topping the Zacks Consensus Estimate of $0.40.
Home Depot’s better-than-expected results were due to an increase in spending on springtime gardening and for basic home improvement projects like paint.
Company Outlook
Management boosted its outlook for rest of the year. The company now expects to increase revenue by 3.5% in fiscal 2011. That is up from its prior guidance calling for growth of 2.5%.
Home Depot also expects to earn $1.88 per share, up from its previous guidance of $1.79.
Estimates
After Home Depot’s first-quarter results and higher guidance, analysts covering the stock lifted their estimates for the next two years. The Zacks Consensus for fiscal 2011 is higher by 10 cents, or 5.5%, to $1.93, and the Zacks Consensus for fiscal 2012 is up 7 cents, or 3.2%, to $2.24.
Balance Sheet
The company ended the first quarter with $2.4 billion in cash and $7.7 billion in long-term debt. The retailer’s debt-to-equity ratio is a reasonable 0.40.
Additionally, Home Depot kept its inventories lean. It ended Q1 with inventory of $11.5 billion, up just 0.5% despite revenue growth of 4.3%.
The Chart
HD shares are up 47% since bottoming in July 2009 at $22.50. The stock has experienced three sell-offs of at least 8% in the last ten months. The current pullback is about 9%, and the stock now trades at 10.3% below its 52-week high.
From a technical perspective, if HD can hold the $32 level, it should be bullish for the stock. If it is unable to hold that level, then HD’s next level of support is most likely its 200-day moving average, which is currently around $30.
