Home Depot (HD) Up 6.7% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Home Depot (HD). Shares have added about 6.7% in that time frame, outperforming the S&P 500.Will the recent positive trend continue leading up to its next earnings release, or is Home Depot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.Home Depot Q3 Earnings Miss, Outlines Soft FY25 EPS ViewHome Depot reported third-quarter fiscal 2025 results, wherein the top line beat the Zacks Consensus Estimate, while the bottom line missed the same. However, sales and earnings per share (EPS) improved year over year. The lower-than-expected EPS primarily reflects the absence of storm-related activity in the fiscal third quarter, which reduced demand in several key categories. While overall trends remained relatively stable on a sequential basis, this stability did not translate into stronger sales in the fiscal third quarter. Persistent consumer uncertainty and ongoing housing market pressure continued to weigh on home improvement spending, limiting the company’s ability to capture incremental demand in the quarter.Home Depot's adjusted earnings of $3.74 per share decreased 1.1% from $3.78 in the year-ago quarter. However, the bottom line missed the Zacks Consensus Estimate of $3.81 per share.Net sales increased 2.8% to $41.4 billion from $40.2 billion in the year-ago quarter and beat the Zacks Consensus Estimate of $41 billion. Total sales included a roughly $900 million contribution from the recent acquisition of GMS Inc., representing about eight weeks of activity in the quarter. Excluding this impact, comparable sales (comps) edged up 0.2% in the third quarter of fiscal 2025, with the U.S. comps rising 0.1%.Customer transactions were 393.5 million, down 1.6% year over year. Average ticket improved 1.8% year over year in the quarter under review.HD’s Costs & Margin DetailsIn dollar terms, gross profit rose 2.9% year over year to $13.8 billion in the fiscal third quarter. The gross margin was approximately 33.4%, up 2 basis points (bps) year over year.SG&A expenses of $7.8 billion increased 5.9% from $7.6 billion in the year-ago quarter. As a percentage of sales, SG&A was about 18.5%, up roughly 60 bps year over year. Operating income was $5.4 billion, down 1.2% year over year, while the operating margin of about 12.9% contracted 60 bps year over year.HD’s Other Financial UpdatesHome Depot ended third-quarter fiscal 2025 with cash and cash equivalents of $1.7 billion, long-term debt (excluding current installments) of $46.3 billion and stockholders’ equity of $12.1 billion. For the first nine months of fiscal 2025, the company generated $13 billion of net cash from operating activities.HD’s Expectations for FY25Management updated its sales and earnings per share view for fiscal 2025. Reflecting its third-quarter fiscal 2025 performance, the company expects continued pressure in the fiscal fourth quarter due to the absence of major storm activity, ongoing consumer uncertainty, and softness in the housing market, along with the added impact of integrating GMS.Home Depot anticipates sales to increase 3% year over year compared with 2.8% growth predicted earlier. The increase reflects a $2 billion incremental sales contribution from GMS. The company expects comps to increase slightly for the 52 weeks of fiscal 2025 compared with 1% growth mentioned earlier.HD estimates the gross margin for fiscal 2025 to be 33.2%, with an operating margin of 12.6%. Earlier, the company predicted a gross margin of 33.4% and an operating margin of 13%. The company expects an adjusted operating margin of 13% compared with the prior expectation of 13.4%. HD plans to open 12 stores for fiscal 2025 against the previously planned 13 store openings. Home Depot expects net interest expense of $2.3 billion for fiscal 2025, and the effective tax rate is anticipated to be 24.5%. The company anticipates capital expenditures to be 2.5% of total sales. Home Depot anticipates EPS to decline 6% year over year for fiscal 2025, while adjusted EPS is estimated to fall 5% year over year. The company earlier expected an EPS decline of 3% and an adjusted EPS decrease of 2%.How Have Estimates Been Moving Since Then?Since the earnings release, investors have witnessed a downward trend in estimates revision.The consensus estimate has shifted -12.76% due to these changes.VGM ScoresCurrently, Home Depot has a average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Home Depot has a Zacks Rank #5 (Strong Sell). 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