Home Depot Managed to Beat Expectations Although NOT All Metrics Look Good, While Stock Remains Somewhat Overvalued

Home Depot (HD) reported quarterly financial results, posting a 6.6% YoY increase in Q3 sales to $40.2 billion. Home Depot also reported adjusted operating income of $5.6 billion and an adjusted operating margin of 13.8% for the quarter, compared to $5.5 billion and an adjusted operating margin of 14.5% in the year-ago period. Adjusted EPS was $3.78, compared to consensus of $3.65 and $3.85 a year ago.

Having said that, U.S. comparable sales dropped 1.2% in the reporting quarter, which, nevertheless, appeared to beat consensus estimates for a 3.3% decline. Customer transactions fell 0.2% YoY to 399 million. Average ticket of retail purchase also fell 0.8% to $88.65.

Looking ahead, Home Depot (HD) thinks that home renovation works return to normal as mortgage interest rates are lowering. As a result, it expects total sales to rise about 4% in FY24, but comparable sales are still to linger by 2.5%, against the company’s previous forecast of -3% to -4%. The hardware retailer expects to open about a dozen new stores. While Home Depot's growth prospects are quite good, its valuation metrics still look too high at current elevated inventory levels.