Home Depot Pre-Q4 Earnings: Is it Wise to Buy Before the Release?

Core Viewpoint - Home Depot is expected to report a decline in both revenues and earnings for the fourth quarter of fiscal 2025, with revenues projected at $38.25 billion, a decrease of 3.7% year over year, and earnings per share (EPS) estimated at $2.51, down 19.8% from the previous year [1][2]. Financial Performance Expectations - The Zacks Consensus Estimate for fiscal 2025 revenues is $164.7 billion, indicating a growth of 3.3% year over year, while the EPS is expected to decline by 4.9% to $14.50 [3]. - Home Depot has a trailing four-quarter average negative earnings surprise of 0.09%, with a negative surprise of 1.8% in the last reported quarter [4]. Earnings Predictions - The company has a positive Earnings ESP of +5.61% and a Zacks Rank of 3 (Hold), suggesting a potential earnings beat [5]. - Management anticipates a 3% year-over-year sales increase, driven by a $2 billion contribution from the acquisition of GMS Inc. [9]. Strategic Initiatives - Home Depot is focused on enhancing its interconnected shopping experience and expanding its Pro wallet share, despite facing economic uncertainty and high-interest rates [7]. - The "One Home Depot" investment plan aims to improve supply-chain facilities, technology, and digital experiences, which are crucial for growth [8]. Market Challenges - The company is experiencing challenges with big-ticket discretionary projects due to high-interest rates and a lack of storm activity, which has negatively impacted sales in key departments [11][12]. - Management expects continued pressure in the fourth quarter from the absence of major storm activity and ongoing consumer uncertainty [14]. Margin and Profitability Outlook - For fiscal 2025, Home Depot expects a gross margin of 33.2% and an operating margin of 12.6%, with EPS anticipated to decline by 6% year over year [15]. - The gross margin for the fourth quarter is predicted to contract to 32.3%, with an adjusted operating margin expected to decline to 10.3% [16]. Stock Performance and Valuation - Home Depot's shares have increased by 14.5% over the past three months, underperforming compared to the industry average of 17.6% [17]. - The stock currently trades at a forward P/E multiple of 25.2X, above the industry average of 23.52X, indicating a premium valuation [20]. Long-term Outlook - Despite short-term headwinds, Home Depot's market leadership and strategic investments position it well for long-term value creation as home-improvement demand normalizes [26]. - The company is well-equipped to capture opportunities as professional project activity rebounds, supported by its integrated model and digital capabilities [25].