Home Depot Confirms A Trend Continuation

Home Depot Exceeds All Expectations 

Shares of Home Depot NYSE: HD are moving higher in the wake of its 3rd quarter earnings and we are not surprised. The company beat the consensus on all metrics that count and provided a positive outlook for investors. The salient points are that tailwinds within the home-building and home-improvement industries continue to blow and they are blowing shares of the stock to new highs. The 5.5% gain posted just after the release is noteworthy not just for its magnitude but also for the longer-term implications that it brings for dividend-growth investors. The move and the candle that is formed are confirming the underlying uptrend by breaking out of a consolidation range in a way that indicates a continuation of the trend as well. In our view, shares of Home Depot should easily reach the $450 level before they hit major resistance. 

A Good Quarter For Home Depot 

Home Depot’s Q3 results are significant because the company not only produced growth on top of last year’s strong comps but it also beat the consensus estimates when we were looking for weakness. The company produced $36.82 billion in consolidated revenue which is up 9.8% over last year and beat the consensus by 570 basis points. The gains were driven by a 6.1% increase in comps, 5.5% in the U.S., as well as new stores and a small acquisition made during the quarter. On a ticket-to-ticket basis, the ticket average jumped 12.9% but was offset by a 5.5% decline in ticket counts. 

Moving down the report, the company reported gross margins flat to last year and a 23.3% increase in net earnings. The earnings results are due to revenue leverage and pricing and produced a solid beat on the bottom line. The GAAP $3.92 in EPS beat the consensus by $0.55 and puts the company on track to soundly beat the full-year estimates as well. Home Depot does not give formal guidance but we are expecting strength to continue into the current quarter at least.

Insiders Are Selling Shares Of Home Depot 

Insiders have been making regular sales of Home Depot shares for the last several years but it doesn’t matter. The insiders own less than 1.0% of the stock and the institutions have been scooping them up all the while. Institutions hold nearly 70% of the shares and we see that figure moving up based on the recent activity. Over the past 12 months, institutional activity has netted roughly $8 billion worth of shares equal to more than 3.0% of the stock. The Marketbeat.com analysts consensus rating has been steady at Buy for the last several quarters but there has been a notable uptick in the consensus target. 

The Marketbeat.com consensus price target of $354 is up 6% over the last 3 months and 4.4% over the last 30 days and is it is still lagging the price action. Considering the fact several analysts downgrade the stock ahead of the report citing supply chain challenges and no challenges were mentioned, it is our view the analysts will start upping their targets again soon and that will add fuel to the rally.

The Technical Outlook: Home Depot Confirms Continuation 

Shares of Home Depot popped more than 5.5% following the Q3 release to gap up at the open and set a new all-time high. Looking at this move on the weekly charts a very interesting pattern appears, the Rising Three Methods. The Rising Three Methods is a continuation signal within an uptrend and we have an obvious and strong uptrend in play. This pattern is akin to the Bullish Flag pattern and comes with similar projections which, in this case, are equal to the Flagpole or $75. Adding $75 to $375 we get $450 and the next target for major resistance.