One of the biggest winners of the pandemic had to be Home Depot (NYSE:HD), who used its “essential” status and dreams of a nicer home to be pretty much locked in endlessly to great effect throughout 2020. Now, with the company's latest earnings report in, and another win established, some are starting to wonder if Home Depot can keep the streak alive as pre-pandemic normalcy starts to reassert itself.
A Mostly-Expected Win for Home Depot
Home Depot pulled off a win, though the win was a bit tainted by the fact that most analysts were already expecting a win, and a big one at that. The company brought in earnings of $2.65 per share, which is fantastic until you realize the consensus estimate was for $2.62 per share. Revenue had a bit broader beat to it, though,as the $30.73 billion expected was blasted clear through by the actual revenue of $32.26 billion. A small gap, sure, until you remember it's measured in billions of dollars.
Better yet, Home Depot handily beat last year's figures as well. The company's $2.65 per share compares wonderfully against the $2.28 per share it brought in a year prior. Same-store sales were on a nicely upward tear as well, turning in 25% growth in the US and 24.5% worldwide, suggesting everyone was interested in some kind of home renovation project this year. Customers' average purchase sizes confirmed this point as well, as the average purchase was up 11% over the same time the preceding year to $75.69.
Ride the Bull, Say, Analysts
Meanwhile, the broader analyst pool—based on our latest research—only gets happier with Home Depot the farther in we go. The company has had a consensus “buy” for the last six months, and the ratios comprising that buy have only improved since.
Six months ago, the company had one “sell” rating, seven “hold”, 25 “buy” and one “strong buy” to its credit. Three months ago, several ratings left the field and shifted the company's ratio more bullish as a result, with no “sell” ratings, five “hold”, 23 “buy” and one “strong buy.” That ratio stayed the same a month ago, and today, one more “buy” has stepped in, bringing the total to five “hold”, 24 “buy” and one “strong buy”, the most bullish rating yet in the last six months.
The price target, meanwhile, has plateaued. Six months ago, it sat at $285.74. It increased three months ago to $293.10, then a month ago, it increased once more to $294.29. That's where we sit today. With Home Depot currently selling at $265.50 as of this writing, analysts expect even better performance to come from the home improvement superstore.
But What Do You Do For an Encore?
The problem for Home Depot is clear here. It's going into a time frame where it's going to have to compete against itself under circumstances that were perfectly optimized to be a win for a home improvement superstore. Back in March 2020, when the lockdowns were first started, and “15 Days to Slow The Spread” turned into 45 days which turned into “maybe forever”, Home Depot turned in a slate of wins. Most people were home around-the-clock. They had time. They also had extra cash thanks to the first round of direct stimulus payments, which is turning into second and third rounds and possibly a track to Universal Basic Income (UBI).
Now, however, circumstances are much different. Most people are back to work. Those who aren't back to work yet may never actually get back to work because the lockdowns destroyed the businesses for which they work. Moves to raise the minimum wage to $15 an hour are in line to do still more damage, and the quantity of the next stimulus package is still being debated. Most of Home Depot's advantages are gone; the homes were renovated last year, and many are back to work. Those who aren't are in no position to engage in home renovations on a home they may no longer be able to keep. An eviction crisis is already in progress as landlords find their options limited in removing tenants who haven't been able to pay rent.
Still, there are bright spots. With spring on the way, outdoor home projects will likely fire back up, and plants will be purchased for landscaping ventures. A stimulus package of some kind will likely fire up before too much longer and give those still able to keep their homes the wherewithal to pretty them up accordingly.
Essentially, the incredible run Home Depot had is likely coming to an end. The conditions that created such a run are fading out, one by one, and returning Home Depot to its natural equilibrium point. Taking profit on Home Depot gains here may be a good plan, but be ready to get back in once the proper balance reasserts itself.
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