Home Depot (HD 0.75%), the largest specialty retailer of home-improvement products in the world, has just announced that it will release its first-quarter results for fiscal 2014 on May 20. Let's take a look at its most recent earnings release and analysts' expectations for the upcoming report, and then take a quick glance at its largest competitor, Lowe's (LOW 0.86%), to determine if we should be initiating long-term positions right now or if we should wait to see what the quarter holds.

Source: Home Depot

The last time out
On Feb. 25, Home Depot released its fourth-quarter report to cap off fiscal 2013 and the results were mixed compared to analysts' expectations; here's a breakdown:

Earnings Per Share $0.73 $0.71
Revenue $17.70 billion $17.99 billion

Source: Benzinga

Home Depot's earnings per share increased 7.4% and revenue decreased 3% year-over-year; however, the company noted that the fourth quarter of 2012 contained an extra week, so on a 13-week comparative basis, earnings per share increased 19.7% and revenue increased 3.9%. These strong results were driven by a 4.4% increase in comparable-store sales, including an incredible 4.9% increase in the United States. 

Source: Wikimedia Commons

Although the statistics above are very impressive, the highlight of the quarter came when Home Depot announced that it would be raising its quarterly dividend by 21% to $0.47 per share; this marked the fifth consecutive year in which Home Depot has increased its dividend and the 108th consecutive quarter in which it has paid dividends to shareholders.

Overall, it was a great quarter for Home Depot, but its stock has shown very little movement in the months since. This may be a great opportunity for investors to initiate positions, but before we draw that conclusion, let's see what analysts expect for the first quarter and if the company is in position to achieve these expectations...

Expectations & what to watch for
Home Depot has scheduled its first-quarter results for release before the market opens on May 20 and the current expectations call for growth on both the top and bottom lines; here's an overview:

MetricExpectedYear Ago
Earnings Per Share $0.99 $0.83
Revenue $20.04 billion $19.12 billion

Source: Estimize

The above estimates call for earnings per share to increase 19.3% and revenue to increase 4.8% year-over-year; these estimates seem well within reach, but other than the key metrics, investors will want to watch for four other statistics and updates:

Source: Home Depot

  1. It will be important for Home Depot to provide guidance for the second quarter that is within or above analysts' expectations; currently, analysts predict earnings per share of $1.44 and revenue of $23.32 billion, which represent year-over-year increases of 16.1% and 3.5%, respectively. 
  2. While it provides adequate second-quarter expectations, it will also be important for the company to reaffirm the full-year guidance that it gave in its fourth-quarter report; this guidance projected earnings per share of approximately $4.38, which represents 16.5% growth from fiscal 2013, as well as revenue growth of 4.8% and comparable-store sales growth of 4.6%.
  3. Make sure Home Depot is on track to achieve its expansion goals for the year. In the fourth quarter, the company said that it expects to open seven new stores, so it will have needed to open at least one in the first quarter, but I would like it to report that it opened two new stores.
  4. Watch for the number of shares repurchased in the first quarter and make sure that the company is on track to achieve its full-year projections. In the fourth-quarter report, the company stated that it expects to repurchase approximately $5 billion of its common stock in 2014, so it will be important for it to exceed $1 billion of repurchases in the first quarter.
If Home Depot can meet or exceed analysts' expectations and satisfy the four elements above, and I think it will, the stock will likely push back toward its previous highs; for these reasons, I would be a buyer of the stock right now and would add to the position if it shows any weakness following the release.

Top competitor's results due out the very next day

Source: Lowe's

Lowe's is the second-largest specialty retailer of home improvement products in the world, which makes it Home Depot's largest competitor. It will release its quarterly results on May 21, so Home Depot's report on the 20th may signify things to come; here's a summary of what analysts currently expect to see:

MetricExpectedYear Ago
Earnings Per Share $0.61 $0.49
Revenue $13.92 billion $13.09 bilion

Source: Estimize

These estimates call for earnings per share to increase 24.5% and revenue to increase 6.3% from the same period a year ago. Like Home Depot, it will be important for Lowe's to provide guidance for the second quarter that is within analysts' expectations and reaffirm the full-year guidance provided in its fourth-quarter report; here's an overview of these expectations:

MetricAnalysts' 2Q ExpectationsLowe's Fiscal 2014 Outlook
Earnings Per Share $1.01 $2.60
EPS Growth 14.8% 20.4%
Revenue $16.42 billion $56.09 billion
Revenue Growth 4.5% 5%

Sources: Estimize and Lowe's

The current estimates for Lowe's first quarter seem attainable, but it would be smart for investors to break down Home Depot's report before initiating new positions or adding to current positions. With this being said, I prefer Home Depot over Lowe's from an investment standpoint because of its top position in the market and because it has performed much better over the last several quarters.

The Foolish bottom line
Home Depot is one of the most powerful retail brands in the United States and I believe it is well positioned to exceed earnings expectations in its upcoming release. Foolish investors should strongly consider initiating positions right now and adding to them on any weakness following the release. This will allow price appreciation and the company's safe 2.4% dividend to provide significant returns over the next several years.