HD Shares Fall After Earnings: What's Next?

At first glance, it doesn’t look good: Shares of Home Depot Inc. (HD) fell after the home improvement retailer missed second-quarter sales projections. Does this pullback signal the end of Home Depot’s impressive run, or is this a buying opportunity?

In my opinion, it’s the latter case. For starters, Home Depot’s second-quarter report was quite strong otherwise. Compared with the year ago quarter, earnings climbed 9.3% to $2.44 billion, or $1.97 per share. This was in line with analysts’ estimates. Over the same period, sales rose 6.6% to $26.47 billion. Sales at stores open a year or longer jumped 4.7%. Analysts were looking for $26.49 billion in sales, so Home Depot missed sales expectations by a hair.

More importantly, though, Home Depot increased its earnings target for the current fiscal year. The home improvement store chain expects to bring in $6.31 EPS, compared with its earlier forecast of $6.27 EPS. This also translates to 16.8% annual earnings growth. Meanwhile, the company expects to grow sales by 6.3%. All-in-all, this was a solid report.

The stock is still trading at a reasonable valuation, especially considering its $18 billion stock buyback program and 2% annual dividend yield. HD is also one of my rare “double whammy” stocks, in that it earns top marks in both Portfolio Grader and Dividend Grader. So if you’re looking to add HD, Tuesday’s pullback presents an excellent buying opportunity.


Louis Navellier

Louis Navellier

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