Will Tuesday's Home Depot Earnings Move the Dow?

Earnings season is now starting to wind down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Home Depot (HD 0.22%) is up on Tuesday. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed, knee-jerk decision.

Home Depot was one of the best performers in the Dow Jones Industrial Average (^DJI 0.67%) in 2012, with gains of 50% for the year. With housing continuing to perform well, does the home improvement retailer have more room to run? Let's take an early look at what's been happening with Home Depot over the past quarter and what we're likely to see in its quarterly report next Tuesday.

Stats on Home Depot

Source: Yahoo Finance.

Will Home Depot keep building?
Home Depot has hardly seen analyst estimates budge all quarter long, with just a single-penny rise in earnings-per-share estimates. The stock has seen its strong run slow down considerably, though, rising just 1% since mid-November.

Home Depot has benefited from a number of positive trends throughout the past quarter. The housing rebound has picked up considerably, with both building and renovation activity on the rise. At the same time, the damage from Hurricane Sandy in late October required clean-up, and Home Depot inevitably got its share of the damage-repair budgets of affected homeowners.

Yet in terms of investing in the housing rebound, investors have to question whether Home Depot is the best play. On one hand, shares of homebuilders PulteGroup (PHM 2.28%) and Hovnanian (HOV 6.62%) soared much more than Home Depot did, as their fates are more directly tied to the housing market. Yet from a fundamental standpoint, Home Depot is a superior investment to Pulte and Hovnanian because, of the three, only Home Depot is profitable, and the home improvement retailer's free cash flow is expanding nicely.

Meanwhile, rival Lowe's (LOW 0.43%) simply hasn't been able to measure up to Home Depot. Lowe's has struggled with margin compression and weak growth, falling behind Home Depot and its healthier numbers.

In Home Depot's earnings report, look to see whether the company's same-store sales gains can continue. Any slowdown in comps, especially in comparison to Lowe's, could lead to short-term declines -- even if a drop in share prices would only mark a chance to buy in for the long haul.

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