Home Depot (HD) Leaps After Topping Q1 Estimates, Analyst Positive

May 18, 2021 8:05 AM EDT
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Shares of Home Depot (NYSE: HD) are up 2.3% in early trading Tuesday after the company delivered better-than-expected earnings for the first quarter.

The company made a profit of $3.86 per share to top the $3.08 expected from market analysts. In the year-ago period, the company earned $2.08 per share. Revenue for the quarter was reported at $37.5 billion to beat Street’s consensus by $2.54 billion.

“Fiscal 2021 is off to a strong start as we continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects," said Craig Menear, chairman and CEO.

The average ticket rose 10.3% to $82.37 while the company reported 447.2 million customer transactions, up 19.3% from a year ago.

HD hasn’t released an outlook for its fiscal 2021. The company added that it repurchased $3.8 billion of shares and also paid down $1.4 billion of debt.

A strong Q1 print from HD comes from the benefits of gross margin stability and solid expense control, according to Guggenheim analyst Steven Forbes.

“HD's 1Q 2021 operating results exceeded our expectations, broadly. Importantly, not only was gross margin relatively stable year-over-year (down just 8 basis points) in the face of significant lumber inflation—with prices up ~45% quarter-over-quarter—but the company generated a relatively high incremental margin on the top-line beat (based on our estimates), showcasing solid expense control —resulting in a ~15.40% EBIT margin (up ~380 basis points year-over-year). Taken together, we expect a positive reaction in the shares this morning,” the analyst said in a memo.

He adds that there is an “elevated level of financial flexibility in which to augment equity value creation in 2021.”

“And importantly, given the combination of HD's solid operating results and strategic capital deployment, ROIC (as defined by the company) has returned to expansionary—note, 1Q 2021 ROIC was 45.1%, up 435 basis points year-over-year.”

Forbes rates HD as “Buy” with a $310.00 per share price target.

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