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 counted 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 for its magnitude and the longer-term implications that it brings for dividend-growth investors.
The move and the candle that is formed confirm the underlying uptrend by breaking out of a consolidation range that indicates a continuation of the trend as well. In our view, the Home Depot stock should easily reach the $450 level before it hits a significant resistance.
A Good Quarter For Home Depot
Home Depot’s Q3 results are significant because the company produced growth on top of last year’s strong comps and beat the consensus estimate when looking for weakness. The company made $36.82 billion in consolidated revenue, up 9.8% over last year and beating the consensus by 570 basis points.
The gains were driven by a 6.1% increase in comps, 5.5% in the US, 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.
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 of $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 expect strength to continue into the current quarter.
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 three months and 4.4% during the previous 30 days, and is it is still lagging the price action. Considering that several analysts downgraded the stock ahead of the report citing supply chain challenges, and no challenges were mentioned, we believe the analysts will start upping their targets again soon, which 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 fascinating pattern appears, the Rising Three Methods.
The Rising Three Methods is a continuation signal within an uptrend, and we have an obvious and robust 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.