The Home Depot, Inc. Beats Earnings Estimates

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The Home Depot, Inc. (NYSE:HD) today announced quarterly earnings that came in at earnings per share of $1.15 on revenue of $20.52 billion.  Analysts polled were looking for earnings per share of $1.13 on revenue of $20.47 billion.  Same store sales in the US rose 5.8% and total same store sales rose 5.2%, beating analysts’ estimates of 5%.  Additionally, the home improvement, DIY retailer reaffirmed sales and profit for full year 2014 coming in at 4.8% for sales growth and $4.54 earnings per share profit.

Home depot’s data breach

While the results and data beat estimates and reaffirmed full year guidance, very positive for corporate operations, Home Depot is still sorting out its data breach that exposed 56 million customer credit cards on September 18th. Additionally, about a month prior to this attack, Home Depot says it experienced a cyber attack that led to 53 million customer email addresses being taken or compromised as well.  As a result of the cyber hacks, Home Depot has a stack of at least 44 lawsuits by customers who were victims of the attack.

Increasing job market and positive US homebuilder sentiment aided Home Depot in achieving positive earnings.  According to Reuters, US homebuilders’ positivity in August and October hit new all time highs.  Better job market is giving life to home sales and demand for real estate.  Being that Home Depot specializes in the home improvement and development industry, having US homebuilders’ being very bullish and jobs increasing is extremely positive for the company.

However, moving back to the lawsuits and the aftermath of the cyber attack, the biggest disappointment and issue that investors will have with Home Depot’s earnings release is the fact that there still is no cost estimate for the attacks and the potential damage that Home Depot will be on the hook to pay for.  This provides investors and analysts with some uncertainty and I do think this overshadows an otherwise very good earnings release.  The reason this cyber attack bill is a major concern is the fact that we do not have an estimate to go off of at this point, we do not know how this will affect future earnings.  Home Depot will obviously have to settle and deal with the 44+ civil lawsuits by customers, but then it also has to come back and reassess how to prevent something like this again.  Home Depot may have to strengthen its payment and customer information infrastructure, which could be pricey and expensive, but quite necessary.

Home Depot bullish earnings

Overall, Home Depot is facing some very bullish macroeconomic factors that will be able to continue supporting the company and its earnings.  Earnings came out very bullish and full year 2014 results are reaffirmed, something that has been important to investors moving forward in this bull market.  As we saw an above average percentage of companies lower full year guidance this earnings season, we have seen companies that reaffirm or raise forward guidance rally and rewarded by shareholders.  Home Depot needs to crush the potential downside factor in the cyber attack costs, to reassure investors that the costs will be in a certain range and to create an expectation.  However, once this issue is resolved, I think Home Depot has a lot of bullish fundamental factors to take a look at.

Disclosure: None

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