🏡 Beating The Retreat After Beating The Street?

Home Depot reported better-than-expected Q3 earnings

Hey Global Investor, here’s what you need to know before the US markets open.

Market Snapshot 📈

S&P 500 (Wednesday Close) 3,567.79 −41.74 (1.16%)

NASDAQ (WednesdayClose) 11,801.60 −97.74 (0.82%)

FTSE 100 (5 PM IST) 6325.15 -60.09 (0.94%)

NIFTY 50 (Today’s Close) 12,771.70 −166.55 (1.29%)

USDINR (5 PM IST) 74.23 (1 Year +3.19%)

Beating The Retreat After Beating The Street?

Home Depot reported better-than-expected Q3 earnings with 23% Y-o-Y sales growth. Still, the stock fell the day after the results were announced. So what gives?

Background: Home Depot is the biggest home improvement retailer in the US. The company supplies tools, construction products, DIY home improvement kits, and other services.

Home Depot was deemed an essential business during the lockdown. And so the stores were open, people were flocking to Home Depot as they took up projects sprucing up their homes, and the sales rose in tandem. The company expects consumer spending to continue well into the new year.

Back in 2007, Home Depot had carved out its HD Supply division and sold it to a syndicate of private equity players, including Clayton Dubilier & Rice, Bain Capital, and Carlyle Group. Earlier this week, Home Depot announced it’s acquiring HD Supply Holdings for $8B, as the company makes a play to cement its position as the leader in the home maintenance and repair products market.

What Happened?  Home Depot easily beat consensus expectations of analysts in Q3.

Key numbers:

  • Revenue: $33.45B, an increase of 23.2% Y-o-Y Vs. analyst estimate of $31.8B
  • EPS: $3.18 Vs. analyst estimate of $3.05
  • Same-store sales: Up 24.1% Vs. a consensus estimate of 17.2%

Home Depot was on track to post $1B in Covid-related costs this year as it created temporary programs such as expanded paid time-off and other benefits to support employees. The company committed to making these programs permanent. Also, Home Depot said it would spend $1B to increase its front-line employees’ wages.

While this is welcome news to the employees, there is potential investor concern regarding increased costs due to a dip in gross margins. This, coupled with the acquisition of HD Supply, made investors look askance and resulted in the stock falling, despite the company handily beating analyst estimates for the quarter.

Market Reaction: HD shares are up 28% in 2020. The stock closed down 2.54% at $272.47 after announcing Q4 results. On Wednesday, the stock closed at $269.83, down 0.97%

Company Snapshot 📈

HD $269.83 -2.64 (-0.97%)

Analyst Rating (33 Ratings) BUY 61%  HOLD 36%  SELL 3%

Newsworthy 📰

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Later Today 🕒

  • 6.00 PM IST: Initial jobless claims (state program, SA)
  • 6.00 PM IST: Continuing jobless claims (state program, SA)
  • After Market Close: Dada Nexus Ltd Earnings (DADA)
  • After Market Close: Bellring Brands Inc Earnings (BRBR)
  • After Market Close: Intuit Inc Earnings (INTU)

Fun Fact of The Day 🌞

Humans are the only mammal species that willingly delay sleep.

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