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Shares of The Home Depot (HD Free Home Depot Stock Report), the world's largest home-improvement retailer, modestly fell following the release of fiscal first-quarter financial results (year ends February 3, 2019). Although earnings came in better than expected (discussed below), the top line was disappointing, and appears to be the catalyst for the stock-price decline. On point, sales in the period rose 4.4% from a year earlier, to $24.9 billion, which was slightly below our estimate of $25.3 billion. Comparable-store sales were 4.2% higher, while stores in the United States posted a 3.9% comp gain. These percentages, for the most part, were below recent quarterly showings. That said, underlying demand for its vast array of products was still clearly solid, and led to adjusted earnings of $2.08 a share, or 25% higher, year over year. We were expecting share net of $2.05. 

Looking ahead, management reiterated its guidance for fiscal 2018. More specifically, it expects to open three new stores during the year, and for the gross margin to hold steady in the neighborhood for 34%. In addition, share repurchases should continue, and for the corporate tax rate to come in around 26% (it usually pays around 36%). According to leadership, all these factors will help share profits reach $9.31, which would represent a year-over-year gain of 25%. Management's guidance, in our view, appears reasonable, and is consistent with our estimates. Simply put, we remain bullish in regard to Home Depot's business prospects, since we believe it will continue to benefit from the favorable housing market and growing economy. 

As for the stock, we continue to believe that it would make a fine core holding in most equity portfolios. In fact, the recent price decline, albeit modest, makes the equity even more appealing, in our view. All told, HD offers worthwhile risk-adjusted return potential.    

About the Company:The Home Depot, Inc. operates a chain of 2,275 retail building supply/home improvement “warehouse” stores across the United States, Canada, and Mexico. The company's average store size is around 104,000 square feet indoor, plus 24,000 additional square feet in its garden centers. The Home Depot's product lines include building materials, lumber, floor/wall coverings, plumbing, heating, electrical, paint and furniture, seasonal and specialty items, and hardware and tools.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.