Home Depot’s 4Q Sales Exceed Analysts’ Estimates; Shares Fall Pre-Market

Home Depot Inc. delivered better-than-expected sales in the fourth quarter as the home improvement retailer saw an increase in the number of customer transactions along with higher average ticket size of purchases during the coronavirus pandemic.

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Despite the outperformance, shares of Home Depot (HD) dropped about 2.5% in Tuesday’s pre-opening trading session. The company posted earnings per share (EPS) of $2.65 during the fourth quarter, which came in ahead of analysts’ expectations of $2.61.

Revenue increased 25.1% year-on-year to $32.3 billion topping analysts’ estimates of $30.66 billion. Sales grew as the number of customer transactions in 4Q jumped 12.8% to 416.8 million year-on-year. Average purchase ticket size also increased to $75.69 from $68.29 in the year-ago period.

For fiscal 2020, the company generated sales of $132.1 billion, up from the $110.2 billion posted in 2019. Diluted earnings per share came in at $11.94 versus $10.25 in the comparable year-ago period.

Home Depot CEO Craig Menear said, “Our ability to grow the business by over $21 billion in fiscal 2020 is a testament to both the investments we have made in the business as well as our associates’ unwavering commitment to our customers.”

While the company did not provide any guidance for 2021, its Executive Vice President and CFO Richard McPhail commented, “If the demand environment during the back half of fiscal 2020 were to persist through fiscal 2021, it would imply flat to slightly positive comparable sales growth and operating margin of at least 14 percent.” (See Home Depot stock analysis on TipRanks)

Home Depot also declared a quarterly dividend of $1.65, representing a 10% increase over the previous dividend.

Last month Guggenheim analyst Steven Forbes upgraded the stock to Buy from Hold and maintained a price target to of $310 (12.4% upside potential).

Forbes cited “The HD Supply acquisition, recent $3 billion debt offering by the company and a more moderate valuation which stands in contrast to the stock’s historical premium.”

The rest of the Street has a Strong Buy consensus rating on the stock based on 6 unanimous Buys. The average analyst price target of $311.80 implies about 13% upside potential from current levels.