Home Depot (HD) stock falls despite earnings beat, Goldman blames high expectations

Shares of Home Depot (NYSE: HD) are down about 2% in pre-market Tuesday trading despite the company reporting better-than-expected results for its third quarter.

HD posted a Q3 EPS of $4.24 on revenue of $38.9 billion, beating the analyst consensus that called for an EPS of $4.12 on sales of $37.92 billion. Overall, revenue rose 5.6% year-over-year (YoY) while comparable sales were up 6.1% YoY.

However, HD shares were hit by lower customer transactions, down 4.3% YoY. Moreover, merchandise inventory soared 25% YoY to $25.72 billion, much higher than the $22.96 average analyst estimate. Both the average ticket and the average ticket sales rose 8.8%.

“We delivered another solid performance in the third quarter, driven by strength in project-related categories across the business,” said Ted Decker, chair, president and CEO.

Home Depot also reaffirmed its full-year guidance that calls for EPS growth in mid-single digits and comparable sales of about +3%.

Goldman Sachs analyst Kate McShane said HD delivered “strong” Q3 results.

“HD's stock may be under some pressure today given high investor expectations surrounding the quarter,” the analyst said in a client note.

Wells Fargo analyst Zachary Fadem said the results were “solid”, although he sees the potential for a pullback in HD shares given last week’s rally.

“HD's Q3 results were very solid, with largely anticipated top/bottom-line beats and reiteration of the FY22 outlook. That said, the bar was high, particularly following last week's CPI relief rally, and with Q4 deceleration implied (on a 3-yr basis), we expect shares to trade lower today,” Fadem wrote.

Telsey Advisory Group analyst Joseph Feldman added:

“HD could be under pressure this morning because the company did not raise its annual guidance, but the cautious approach in this uncertain environment makes sense and could prove conservative. Overall, Home Depot should remain a winner in retail, given its best-in-class execution, digital prowess, and hybrid work-from-home arrangements causing more maintenance and repair activity.”

Home Depot stock price was down 26% year-to-end heading into the Q3 earnings print.

By Senad Karaahmetovic

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