Home Depot (HD) The third-quarter forecast topped Tuesday morning, with Louie (Low) On deck early Wednesday. HD stock was down slightly and the lower stock was little changed before the open on Tuesday after Home Depot’s earnings.
Home improvement retailers provide insight into the state of inflated demand and prices in the home construction and remodeling markets.
Home prices rose 13% year-over-year in August, according to the latest data from the CoreLogic S&P Case-Shiller Index. This is down from the 15.6% increase in July, marking the fifth consecutive month of slowing price increases. Meanwhile, existing home sales are down 30% as of August, as are new home sales, CoreLogic reported last week.
Blame high mortgage rates for declining home sales and cooling prices. But homebuilders and housing-related retailers have rebounded in the past few weeks as Treasury yields have fallen from their highs as inflation begins to subside. This raises hope that housing demand will start to improve, though not necessarily immediately.
MKM Partners analyst David Bellinger wrote in a research note last week that housing problems also raise concerns about demand for remodeling and contractor suppliers. But comparable store sales in the third quarter are likely to be flat. And the JPMorgan Analyst Christopher Horvers (JPM) believes that home names “should see a greater degree of late negative reviews” through 2023.
Meanwhile, retailers that have pricing power, in needs-based categories and control their margins, are in the best position while macro concerns are high, City (C) analyst Stephen Zakon wrote in a research note dated October 31. Fundamentals are “generally mixed to positive in the near term, but the rolling bears thesis is a drag that ultimately suggests that trends are only going to get worse.”
Home Depot earnings
Expectations: A further slowdown was expected in Tuesday’s retailer report. Home Depot’s third-quarter earnings were expected to grow 5% to $4.12 per share on revenue growth of 3% to $37.95 billion.
consequences: Home Depot earnings rose 8.2% to $4.24 a share while revenue increased 5.6% to $38.87 billion.
Home Depot’s earnings have now grown for 10 consecutive quarters. Year-over-year adjusted earnings growth slowed again after falling to 11% in the second quarter, and it’s now the fourth consecutive quarter of gains below 20%. Revenue rose for the sixth consecutive quarter of low double-digit gains.
Same-store sales increased 4.3% for the third quarter after growing 5.8% in the second quarter. Home Depot is still stuck with bloated inventories, which were up more than 24% year-over-year in the third quarter. But that’s down from 35% in the second quarter.
Home Depot confirmed its outlook for 2022 after its results. For the fiscal year, Home Depot still expects single-digit EPS growth with total sales and comp increasing 3% and operating margin of 15.4%. Wall Street expected Home Depot earnings to rise 3.6% and revenue to increase 1.8%.
Home Depot stock fell 1% in the primary market Wednesday after the announcement. Shares fell 2.6% on Monday, ahead of its earnings report. HD stock is down about 26% year to date.
Home Depot last week retraced its 200-day moving average. It can be said that HD stock has a bottom base at 333.08 buy points. It is possible that the arrows will begin to act on the handle.
Lowe’s earnings growth slowed in 2022 and the company reported lower or flat revenue for the past two quarters. For the second quarter ending in June, Lowe’s topped earnings estimates but fell behind revenue. Earnings per share were up 9.8% year-over-year to $4.67. Revenue was basically flat, falling 0.34% to $27.476 billion, down from $27.57 billion.
Inventories increased by nearly $2 billion to $19.33 billion in the first quarter, from $17.322 billion a year earlier. Lowe’s reported gross store sales fell 0.3% for the period while US comparable sales fell 0.2%.
Expectations: Lowe’s earnings are expected to jump 13% to $3.09 a share, marking its best gain in a year. The 1% revenue increase, to $23.12 billion, would be Lowe’s first positive revenue quarter since January.
Lowe’s confirmed its full-year outlook after its second-quarter report. The company expects EPS in the upper range of $13.10 to $13.60. It looks to sales at the lower end of $97 billion-$99 billion. Analysts see earnings per share of $13.39 on revenue of $98.106 billion.
Stocks are low
Lowe’s stock was little changed early Tuesday. Stocks fell about 2% on Monday ahead of Wednesday’s earnings report, and shares are down nearly 21% so far this year. The stock’s relative strength hit a new high ahead of the results, with its relative strength rating reaching 69 on Monday. However, the stock is still deep in an 11-month correction.
Like HD stock, Lowe’s recently recovered its 200-day streak and has a bottoming out. The buy point is 221.29.
You can follow Harrison Miller for more stock news and updates on Twitter @employee
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