Q4 Preview: Home Depot (HD) Should Benefit from Warm Weather Trends

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HD Hot Sheet

Rating Summary:
6 Buy, 9 Hold, 0 Sell

Rating Trend: = Flat

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Up: 0 | Down: 0 | New: 0

Home Depot (NYSE: HD) shares are trading near annual highs Friday heading into its fourth-quarter earnings report, expected out ahead of the bell on Tuesday (following the extended holiday weekend).

The Street currently expects Home Depot to report earnings rose 17 percent from the same quarter last year to 42 cents per share. Revenue should be about $15.5 billion. Over the last five quarters, Home Depot bested Street EPS views by an average of 7.3 percent and beat last year by 20 percent.

Through the quarter, Home Depot stock rose 25.9 percent to $44.39 at the end of January. Home Depot ended 2011 up 23.5 percent and shares are currently 10.7 percent better since the end of the quarter.

One positive factor Home Depot has clearly been reflecting is a series of strong economic data points. From lower initial claims to stronger housing starts, most every metric that moves higher (or lower, in the case of unemployment) is a boost for Home Depot.

Analysts have an average price target of $46 on Home Depot, with a low of $37 and high of $55. Shares have been within a range of $28.13 to $46.61 over the last year. Bloomberg data shows 17 analysts have a Buy rating on Home Depot, 13 are at Hold, and none maintain a Sell.

Analyst Comments

Deutsche Bank said warmer weather would hamper cold weather-related equipment like shovels and snowblowers, but enhance sales of items typically bought in the spring and fall. Specifically, the firm believes outdoor paint would be a strong category.

For Home Depot, the firm is modeling EPS of 42 cents with a 2 percent gain in comps. Deutsche says Home Depot had particular strength in big ticket items over the last two quarters. Operating margin will increase about 70 basis points to 9.3 percent

Looking to 2012, Deutsche said it currently expects "EPS [of] $2.84, up 19% on a 2.5% comp increase. This includes about $0.10 benefit from the extra week of sales....This echoes commentary from Tractor Supply and Scotts Miracle Grow, with the latter noting that areas such as Florida and Texas have transitioned to Spring and consumers in northern climates have been able to get outdoors more frequently. While difficult to gauge, we believe weather has benefited comps by ~100 bps in 4Q, slightly more than the weather/hurricane impact in 3Q."
JPMorgan sees EPS of 43 cents and believes "trends have been aided by favorable weather trends, an earlier Spring in the South, and continued home repair and maintenance spending." JPMorgan is heavier on the comps, seeing an increase of 3 percent driven by slightly stronger traffic trends.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Home Depot's past performance at Streetinsider's Home Depot's Income Statement.

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