The investors in The Home Depot, Inc.'s (NYSE:HD) will be rubbing their hands together with glee today, after the share price leapt 25% to US$191 in the week following its yearly results. Results were roughly in line with estimates, with revenues of US$110b and statutory earnings per share of US$10.25. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. With this in mind, we've gathered the latest statutory forecasts to see what the analysts are expecting for next year.
Taking into account the latest results, the most recent consensus for Home Depot from 27 analysts is for revenues of US$113.3b in 2021 which, if met, would be an okay 2.8% increase on its sales over the past 12 months. Statutory per share are forecast to be US$10.21, approximately in line with the last 12 months. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$113.9b and earnings per share (EPS) of US$10.44 in 2021. So it looks like there's been a small decline in overall sentiment after the recent results - there's been no major change to revenue estimates, but the analysts did make a small dip in their earnings per share forecasts.
It might be a surprise to learn that the consensus price target was broadly unchanged at US$235, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. The consensus price target is just an average of individual analyst targets, so - it could be handy to see how wide the range of underlying estimates is. The most optimistic Home Depot analyst has a price target of US$288 per share, while the most pessimistic values it at US$179. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Home Depot shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. It's pretty clear that there is an expectation that Home Depot's revenue growth will slow down substantially, with revenues next year expected to grow 2.8%, compared to a historical growth rate of 6.1% over the past five years. Compare this against other companies (with analyst forecasts) in the industry, which are in aggregate expected to see revenue growth of 4.7% next year. Factoring in the forecast slowdown in growth, it seems obvious that Home Depot is also expected to grow slower than other industry participants.
The Bottom Line
The most important thing to take away is that the analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Home Depot's revenues are expected to perform worse than the wider industry. The consensus price target held steady at US$235, with the latest estimates not enough to have an impact on their price targets.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At Simply Wall St, we have a full range of analyst estimates for Home Depot going out to 2025, and you can see them free on our platform here..
However, before you get too enthused, we've discovered 3 warning signs for Home Depot that you should be aware of.
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