When Home Depot (HD) announced their 3rd quarter results on November 19th, they also updated their guidance for fiscal year 2013.HD now expects diluted EPS to reach $3.72 this year. Earnings per share were $3.02 for the first 9 months of the current year (an increase of 30.2% to last year's $2.32).
Analysts expect Home Depot to have earnings per share of $4.42 next fiscal year, giving it a forward price to earnings ratio of 18.06, slightly lower than its competitor Lowe's (LOW), which has a forward p/e of 18.96 based on expected earnings per share of $2.53 for FY 2014.
So far this year, Home Depot has had some amazing results, with revenue up by high single digits each quarter. Net income for the first 9 months is up by 24.4% compared to the first 9 months of 2012.
Revenue (in $millions)
Revenue compared to last year
Long-time readers, listeners as well as clients already know how I feel about the current U.S. stock market bull. For example, the absence of revenue growth at corporations (e.g., average sales growth for Dow components in 2013 is -0.7%) and the exceptionally high cyclically-adjusted P/E (i.e., 25) do not matter right now. And that's OK. Pending home sales have dropped for five straight months and mortgage applications have declined for five consecutive weeks, placing a potential damper on the real estate recovery. That's OK too. Not to be outdone, bearish sentiment by investment advisors, a well-tracked contrarian indicator, has plunged to its lowest level in a quarter century (14.3%). That's fine as well. In other words, as long as the investment community believes that Federal Reserve maneuvers will benefit equity risk-taking, it is sensible to participate in the easy-to-identify uptrends.
On the other hand, let me present a hypothetical scenario