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Home Depot (HD) is scheduled to report its fiscal 3rd quarter earnings before the bell on Tuesday, November 13th, 2012. Analyst consensus is expecting $0.70 in earnings per share on $17.89 billion in revenues, for expected year-over-year (y/y) growth of 16% and 3% respectively.

Revenue and earnings consensus have been fairly stable since the last earnings report in August, '12.

The reader should note the big disparity between revenue and earnings growth, and is the real story behind Home Depot's stock price performance the last few years - with very little new store and revenue growth, HD has managed to generate double-digit earnings growth on "capital allocation" or higher dividends, and large share repurchases, driven by remarkable cash-flow generation.

As you will see in the following table, the majority of Home Depot's savings and earnings growth has come from operating margin expansion, driven by remarkably rigid expense discipline, and a reduction in selling store operating expenses from 26% of revenues in January, 2010 to under 20% as of the July quarter, 2012.

Qtr end rev gr y/y eps gr y/y Op mgn (%) Shares O/S (bl's)
7/12 q2 2% 17% 12.49% 1.512
4/12 q1 6% 30% 9.62% 1.531
1/12 q4 6% 39% 8.31% 1.535
10/11 q3 4% 18% 9.32% 1.548
7/11 q2 4% 19% 11.34% 1.577
4/11 q1 0% 11% 8.45% 1.599
1/11 q4 4% 50% 6.86% 1.614
10/10 q3 1% 24% 8.72% 1.646
7/10 q2 2% 13% 10.56% 1.653
4/10 q1 6% 29% 7.74% 1.688
1/10 q4 0% 26% 4.99% 1.691

Since, January 2010, when the stock was trading near $30, HD has repurchased 179 million shares or almost 8% of its market capitalization (assuming an average $45 share price).

Home Depot is trading at 12(x) 4-quarter trailing cash-flow, 15(x) free-cash-flow and 20(x) the current fiscal 2013 consensus (ends Jan '13) of $2.97.

The stock isn't a screaming buy any longer, and even though we are in the earlier stages of a housing rebound / recovery, I wonder how much juice the company can still squeeze out of the income statement and balance sheet as Home Depot continues to suffer from low single digit comp's and low-single-digit revenue growth.

Another aspect to Home Depot that worries us - is the 47% year-to-date return on the stock a function of HD's 2% dividend yield, as a so-called bond proxy, which we've seen a lot of in the stock market this year ?

We would love to see a 10% - 15% pullback in Home Depot, but that hasn't happened in a long time.

Source: Home Depot Earnings Preview: Expense Discipline Has Been Phenomenal, Need To See Comp Growth