Will Home Depot Rebound on Q1 Earnings?

The Home Depot, Inc. (NYSE: HD) gained immensely from work-from-home mandates and higher spending fueled by government stimulus amid the early phase of pandemic. However, with these pandemic-led tailwinds fading, the home improvement retailer’s business could experience a slowdown.

The Home Depot shares are down nearly 29% year-to-date amid concerns about high inflation, and rising interest and mortgage rates.

Home Depot is scheduled to announce its results for Q1 FY22 on May 17. Let’s see what the Street’s expectations indicate.

Q1 Expectations

The Home Depot ended FY21 on a strong note with its Q4 results surpassing analysts’ sales and EPS estimates. Q4 FY21 net sales grew 10.7% year-over-year to $35.7 billion, while EPS increased 21.1% to $3.21.

While the company didn’t provide any specific outlook for Q1 FY22, it cautioned investors about the uncertainty associated with inflation, supply chain disruptions and consumer spending. Home Depot expects its net sales growth and comparable sales growth to be slightly positive in FY22, and EPS growth in the low-single digits.

Meanwhile, analysts expect Home Depot’s Q1 FY22 sales to decline 2.1% year-over-year to $36.7 billion, reflecting tough comparisons. They predict EPS to fall 4.7% to $3.68, indicating the impact of lower sales and cost pressures.  

What Does Website Traffic Indicate?

While Home Depot has an impressive network of physical retail stores, it has also been strengthening its digital channels to boost its online business and enhance the consumer shopping experience.

TipRanks’ Website Traffic tool indicates that in the February-April quarter, estimated visits on Home Depot’s website declined 3.1% from the previous quarter and were down 11.33% on a year-over-year basis.  

Wall Street’s Take

Heading into Q1 FY22 results, Piper Sandler analyst Peter Keith lowered his price target to $310 from $314 and reiterated a Hold rating on HD stock.

Keith feels that the declining demand for home goods, elevated inventory levels and an unfavorable spring season could result in a record markdown period for outdoor durable goods in the first half of the year. The analyst sees the highest markdown and gross margin contraction in Q2 for Home Depot, Lowe’s (LOW) and Big Lots (BIG).

Meanwhile, the Street is bullish on Home Depot, with a Strong Buy consensus rating based on 15 Buys and three Holds. The average Home Depot price target of $366.19 implies 23.7% upside potential from current levels.

Conclusion

Wall Street continues to be optimistic about Home Depot’s long-term prospects. That said, near-term headwinds, like increased input costs and the impact of rising interest rates on home market, could weigh on the company’s performance and further impact the stock.

TipRanks’ Website Traffic tool reveals unfavorable data with the regard to the company’s Q1 FY22 online business.

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