Home Depot (HD) and Walmart‘s (WMT) Q4 earnings reports on Tuesday, February 21, will give investors a broader glimpse of how the economy is currently affecting consumers.

Let’s take a look at these two retail giants’ stocks before their quarterly releases next week.

HD Q4 Preview & Outlook  

Home Depot’s Q4 earnings are projected at $3.26 per share, which would be up 1% year over year. Sales for the quarter are expected to be $35.91 billion and virtually flat from a year ago.

Home Depot Earnings ESP: The Zacks Surprise Prediction indicates Home Depot should reach quarterly expectations on its bottom line with the Zacks Consensus for Q4 EPS on par with the Most Accurate Consensus of $3.26.

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Rounding out its fiscal 2023, Home Depot’s earnings are now forecasted to be up 7% to $16.64 a share compared to EPS of $15.53 in 2022. Earnings are expected to rise another 1% in FY24. However, earnings estimate revisions are down over the last quarter.

On the top line, sales are forecasted to be up 4% in FY23 and be virtually flat in FY24 at $158.51 billion. More impressive, Fiscal 2024 sales would represent 46% growth from pre-pandemic levels with 2019 sales at $108.20 billion.

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WMT Q4 Preview & Outlook

Turning to Walmart, Q4 earnings are forecasted at $1.52 per share which is roughly on par with the prior year quarter. Fourth-quarter Sales are projected at $159.66 billion, up 4% YoY.

Walmart Earnings ESP: Walmart is expected to slightly top bottom-line expectations with the Most Accurate Consensus at $1.54 per share and the Zacks Consensus having EPS at $1.52.

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Walmart is now expected to finish fiscal 2023 with EPS of $6.08 which would roughly be a -6% decline from FY22 earnings of $6.46 a share. Fiscal 2024 earnings are forecasted to rebound and rise 6% at $6.49 per share. However, earnings estimates have also gone down for Walmart throughout the quarter.

Walmart sales are now projected to be up 6% in FY23 and rise another 3% in FY24 to $627.30 billion. Fiscal 2024 would be a 22% increase from pre-pandemic levels with 2019 sales at $514.40 billion.

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Performance & Valuation

Over the last year, Walmart’s +6% has outperformed the S&P 500’s -7% and Home Depot’s -8% performance. However, over the last decade, Home Depot’s +505% total return including dividends has easily topped the benchmark and Walmart’s +159%.

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From a valuation standpoint, both stocks trade attractively relative to their past but Home Depot appears to have a slight edge.

Shares of Home Depot trade at $317 per share and 18.9X forward earnings which is above its industry average of 12.2X. However, Home Depot is a proven industry leader and trades 33% below its decade high of 28.1X and 11% beneath the median of 21.2X.

In comparison, Walmart trades at $146 a share and 22.5X forward earnings, well above its industry average of 11.7X although it’s also a leader. Shares of WMT trade 20% below its own decade-long high of 28.1X but 23% above the median of 18.3X.

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Dividends

Dividends are always appealing to investors, and both Home Depot and Walmart stick out in this regard. Walmart is currently a Dividend Aristocrat, raising its yield for more than 25 consecutive years (49 Years) with the company announcing yesterday that it will raise its dividend by 2% in 2023 to $2.24 per share.

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While Walmart is on the cusp of being a Dividend King upon raising its dividend again in 2024 (50 Consecutive years) Home Depot’s yield is satisfying as well. Home Depot’s 2.37% annual dividend yield tops Walmart’s 1.55% with both above the S&P 500’s 1.18%.

Takeaway

Both Walmart and Home Depot stock land a Zacks Rank #3 (Hold) heading into their earnings reports next week. Much of the upside in their stocks will depend upon the guidance they can offer which will also give a broader insight into the current behavior of the consumer.

Walmart will stand to benefit if a wider audience of consumers continues to choose the retailer as an option to save or spend less amid economic uncertainty and higher inflation. This along with continued improvement in inventory and operating costs.

Effective management of costs during a broadly tougher operating environment will also be key for Home Depot along with inflation hopefully having a less dismal effect on consumers’ demand for home improvement products.

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