We expect the world's largest home improvement retailer The Home Depot Inc.HD to beat expectations when it reports first-quarter fiscal 2016 results on May 17, before the market opens.
Additionally, Home Depot outperformed the Zacks Consensus Estimate by an average of 2.5% over the past four quarters, with a beat in each.
Why a Likely Positive Surprise?
Our proven model shows that Home Depot may beat on earnings because it has the right combination of the two key components.
Zacks ESP: Home Depot currently has an Earnings ESP of +1.50%. This is because the Most Accurate estimate stands at $1.35 per share, while the Zacks Consensus Estimate is pegged at $1.33.
Zacks Rank: Home Depot carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 and 3 have a higher chance of beating earnings estimates. The Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Home Depot's Zacks Rank #3 and Earnings ESP of +1.50% makes us confident of an earnings beat.
What is Driving Better-than-Expected Earnings?
Home Depot delivered a strong fourth-quarter fiscal 2015 mainly backed by its focus on improving customer experience, solid execution and persistent housing market recovery. We remain hopeful about Home Depot's upcoming results given the robust guidance for 2016. Also, we expect Home Depot's focus on developing merchandising tools and increasing investment in e-commerce to boost its top line and enhance market share. Moreover, the company is on track to achieve its long-term dividend payout, share repurchase and return on investment targets, which highlight its financial strength.
Other Stocks to Consider
Home Depot is not the only firm looking up this earnings season. The following companies are also likely to beat on earnings in the to-be-reported quarter:
Lowe's Companies Inc. LOW , scheduled to report earnings on May 18, has an Earnings ESP of +2.41% and a Zacks Rank #3.
Best Buy Co. Inc. BBY , scheduled to report earnings on May 24, has an Earnings ESP of +2.94% and a Zacks Rank #2 (Buy).
DSW Inc. DSW , scheduled to report earnings on May 24, has an Earnings ESP of +2.17% and a Zacks Rank #3.