Home Depot Earnings Is Just a Day Away -- And Nearly 86% of Prediction Markets Expect Good News

Home Depot's (NYSE: HD) fourth-quarter earnings report is due out on Tuesday morning, and investors will be watching closely.

The leading home improvement retailer could use a win after suffering through a lackluster housing market over the last few years. Home Depot did get some good news last Friday after the Supreme Court blocked some of President Trump's tariffs, including the "Liberation Day" tariffs he announced last April, which should lower costs on some of its imports.

Now, there's another reason to expect strong results from Home Depot on Feb. 24. According to Polymarket, the leading prediction marketplace, 86% of bettors believe that Home Depot will beat the analyst consensus of $2.52 in adjusted earnings per share in its Q4 earnings report.

In fact, the percentage has moved significantly higher since the stock market closed last Thursday, showing optimism building for Home Depot's report. The chart spiked overnight, a sign that a whale may have made a large bet on Home Depot.

Image source: Home Depot.

What to expect from Home Depot's quarter

Polymarket bettors might be expecting a beat, but investors should understand that Home Depot's business is still under pressure. The analyst consensus calls for revenue to fall 4% to $38.1 billion, and for adjusted earnings per share to slip from $3.02 to $2.52.

Like the rest of the housing sector, Home Depot has been pressured by elevated mortgage rates, the "lock-in effect" from the pandemic, and inflation sapping consumer spending. In the third quarter, the company cut its full-year guidance due in part to a "lack of storms" in the third quarter, which impacts spending on repairs. For the full year, it expects sales growth of 3% and slightly positive comparable sales. It also called for adjusted earnings per share to decline by 5% to $15.24.

While the weather was a headwind in the third quarter, Home Depot may have benefited from the winter storm across much of the eastern half of the country in late January, which will show up in the Q4 results.

Rival Lowe's won't report fourth-quarter earnings until Wednesday, and most of its retail peers have also not reported earnings yet. Walmart posted solid results in its fourth quarter, including a 4.6% increase in U.S. comparable sales, but Walmart mostly competes in defensive categories like groceries, while most spending at Home Depot is discretionary.

Is Home Depot a buy?

Home Depot still enjoys significant competitive advantages due to its scale and tech infrastructure, and it essentially has a duopoly in the home improvement market along with Lowe's.

However, that's not enough to deliver growth in a challenging housing market, and the stock isn't cheap at a price-to-earnings ratio of 25. While Home Depot still looks like a long-term winner, investors are better off passing on the stock until underlying conditions improve or the valuation gets cheaper.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.