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Home Depot
is scheduled to report third quarter 2008 results before the
market opens on Tuesday, November 18. Based on our analysis, we
at
eChristianInvesting are expecting HD to report disappointing
results that fail to meet Wall Street’s consensus expectations.
Analyst
Expectations
We are
forecasting revenues of $17.5 billion and EPS of $.37. This
would represent a 8% decline in revenues from last year’s $19.0
billion in the same period. The current analyst consensus calls
for revenues of $17.8 billion and $.39 EPS. On August 19, the
company provided full year 2008 guidance for declines in
revenues of approximately 5% and declines in EPS of
approximately 24%.
Last
quarter, Home Depot delivered surprising results to the upside –
handily beating Wall Street analyst estimates. Much has changed
in the economic environment in the past few months and we see
very little chance for the company to deliver similar results
this quarter.
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There
has been no substantial improvement in the housing market
and our checks so further weakness in home improvement
spending.
-
The
number of customer transactions continues to decline as
softening consumer demand led to declines in store traffic.
-
The
average value of customer transactions has declined due to
greater discounting and more value-conscious shopping.
Share
Performance
To date,
Home Depot’s shares have fallen 24%. By comparison, the Dow
Jones industrial average has fallen 38% this year, and the
Standard & Poor's 500-stock index is down 42%.
Valuation
Shares are
now trading at 13x consensus 2009 EPS estimates. This is premium
with the relative valuations of their peer group. In the short
term, macroeconomic pressures will continue to weigh on the
company’s performance. There are little prospects of recovery
for the housing markets in 2009 and a rising unemployment rate
will further impact store traffic.
Recommendation:
Sell with a $15 price target.
At the time this article was published, the author did not have
a financial position in any of the stocks mentioned in this
article.
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