Amid the slaughter in stocks today, there’s been a glimmer of home: Home Depot (HD).AJ Mast for the Wall Street Jour
The home-improvement retailer’s shares of popped today despite missing earnings forecasts after Home Depot said its May sales had been “robust.” Janney’s David Strasser and team offer a “but:”
We feel the need to add a “But” to the conversation. In Q1, big ticket growth decelerated a decent amount impacted by bad weather as OPE and roofing categories were affected. This was offset, to some degree, by unprecedented damage from burst pipes and other home improvement jobs needed after the winter. Now heading into Q2, before getting too excited about the robust sales trends, we need to better understand whether the strength is predominantly seasonal, and whether the big ticket deceleration of the last 2 quarters is weather related or housing related. We do not want to be overly critical, but HD’s stock price, for the remainder of the year, will largely depend on whether the Company can offset the slowdown in housing turns. Big ticket sales provide a key indicator of its ability to continue this strong sales growth. Several vendors have highlighted moderation in bigger ticket categories and we worry whether its indicative of a broader slowdown…We are not betting against HD, but we are concerned about betting with the housing cycle. Home prices have improved and are stabilizing, which will help, but there are several headwinds including negative turnover, higher rates, lower ownership, tight credit and slowing GDP/income levels.
Canaccord Genuity’s Laura Champine and Jason Smith prefer Home Depot to Lowe’s (LOW):
We continue to favor Home Depot over Lowe's. We view HD's execution in merchandising and in stores as superior, and we think HD will continue gaining share.
Shares of Home Depot have gained 1.7% to $77.80, while Lowe’s has dipped d0.1% to $45.52.