Home Depot Provides Outlook - Analyst Blog

The Home Depot Inc. (HD) raised the outlook for fiscal 2010 based on its performance so far in the year. The company also guided results for fiscal 2011.

Home Depot now expects fiscal 2010 top line to improve 2.3% while the bottom line is forecast to increase 27% to $1.97 per share. Earlier, during the third quarter conference call, Home Depot guided sales to increase 2.2%. Earnings were expected to increase 25% to $1.94 per share.

For fiscal year 2011, Home Depot expects sales to increase in a band of 2.0% to 2.5% with comparable store sales growing in the low single digits. The company estimates a modest gross margin gain of 30–40 basis points. The tax rate is expected to be 36.9%. Home Depot guides earnings per share to grow 7%–9%. Incorporating a share buyback worth $2.5 billion, earnings per share are expected to grow 11%–13%.

Home Depot expects cash flow from operations to total $5.4 billion, and capital expenditure and depreciation and amortization expenses to total $1.3 billion and $1.7 billion, respectively. The company targets 10 new store openings in 2011.

Home Depot also remains focused on its four strategic areas. The company expects to take care of associates, putting customers first and simplifying the business to enhance its customer service. Merchandising transformation and portfolio strategy, including innovation, assortment and value will remain the key focus of  product authority.

The company will allocate capital to build superior competitive advantages in information technology and supply chain. It will also enhance shareholder value through higher returns on invested capital and total value returned to shareholders through dividends and share repurchases. This will be the focus of driving productivity and efficiency program.

Home Depot intends to serve customers with best-in-class shopping experience across multiple channels to remain focused on interconnected retail.

Lowe's Companies Inc. (LOW), which competes with Home Depot, also recently reaffirmed its fiscal 2010 sales outlook pegged at a 3% to 4% growth, while comparable-store sales are expected to inch up 1% to 2%.

During the third quarter 2010, Home Depot posted third-quarter 2010 earnings of 51 cents per share, beating the Zacks Consensus Estimate of 48 cents. Results also surpassed 41 cents reported in the year-ago period. Higher revenue coupled with lower expenses aided Home Depot to deliver solid results in the quarter.

The Zacks Consensus Estimate for fourth-quarter 2010 is 27 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, $1.94 per share and $2.21 per share.

We maintain our long-term “Neutral” recommendation on Home Depot. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.

Based in Atlanta, Georgia, The Home Depot Inc. is the world's largest home improvement specialty retailer, offering a diverse range of branded and proprietary home improvement items, building materials, lawn and garden products and related services.

 
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