Home Depot Q4 earnings outlook

The Home Depot Company (#HomeDepot), a retailer of home and building materials with more than 2,000 major hardware stores in the US, Canada and Mexico, plans to release its fourth quarter and fiscal year report before the market opens on Tuesday, February 22.

Driven by continued demand for home improvement projects, a strong real estate market, investment activity, solid growth in professional and DIY customer categories, and an effective corporate strategy, The Home Depot has witnessed healthy growth in its business sales and revenue, as according to CEO Craig Menear, “there is no supply chain or inflation hedge to dampen the good news”.

Figure 1: Home Depot’s reported sales and EPS versus analyst forecasts. Source: money.cnn

In fact, The Home Depot has performed exceptionally well since the onset of the Covid-19 pandemic, as the housing boom coupled with the trend of working from home and online learning has increased demand for home improvement. In 2020, the company’s sales were $132.1 billion, up 19.9% from a year earlier, while earnings per share (EPS) rose 16.5% year over year to $11.94. The company’s growth is expected to slow due to continued supply chain headwinds and higher cost of sales, with sales and EPS of $34.9 billion and $3.18, respectively, down -5.4% and -18.9% sequentially.

Figure 2: Potential share of remote working hours by country, %. Source: McKinsey

A hybrid model of remote work is likely to persist post-pandemic, with higher rates in advanced economies, according to the McKinsey Global Institute. This claim is backed up by another survey conducted by Upwork, which predicts that 22% of Americans, or about 36.2 million, will be working remotely by 2025, an 87% increase from pre-pandemic levels.

Figure 3: Potential Share of Remote Work Hours by US Sector, %. Source: McKinsey

The model also shows that white-collar workers in industries such as financial insurance, management, technology services, IT and telecommunications are likely to be working remotely for more than 50% of their time.

Figure 4: Global respondents perceive the benefits of remote work. Source: Statista

Considering the benefits shown above, it is unlikely that the trend towards remote work/hybrid work structures will stop completely even after the pandemic is over. This could be a positive catalyst for The Home Depot, as people are more likely to spend on home offices to be more productive. Also, if commuting is no longer required, some employees may settle in cities with a lower cost of living. Rising homeownership rates may also encourage these people to spend more to keep their homes in top shape.

Technical analysis:

The weekly chart shows that #HomeDepot has been in a strong bullish trend over the past two years. Shares of the company have nearly tripled their total gain since the March 15, 2020 low ($140.51) rebounded to a December 5, 2021 high ($420.29). However, with the economy continuing to reopen and expectations of a more hawkish stance from the Federal Reserve in its monetary policy, #HomeDepot has failed to maintain its highs and plunged by 20% to its latest close of $346.72.

On the daily chart, #HomeDepot shares are expected to trade between $343.70 and $354.25, 21.86% below the median analyst estimate. Upcoming earnings announcements could provide further guidance on the stock’s whereabouts. If it breaks the range ceiling at $354.25, the next resistance to watch is $372.95. This is also a confluence area with the 100-day SMA. On the other hand, the lower bound at $354.25 acts as the nearest support. A break below this level could indicate more bearish pressure, pushing the price to the next support at $325.65 and $313.40 (or analysts’ low estimate of $310).

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Larince Zhang

Market Analyst

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