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Home Depot shares decline after sales drop, but there is reason to be optimistic



Home Depot Inc. shares plunged 5% in trading on Tuesday after the home improvement giant announced sales that missed expectations, but Raymond James analysts say there is reason to be optimistic.

Home Depot

HD, -5.15%

reported net income of $ 2.77 billion, or $ 2.53 per share, down from $ 2.87 billion, or $ 2.51 per share, last year. FactSet consensus was for $ 2.52.

Sales during the quarter totaled $ 27.22 billion, up from $ 26.30 billion but below the Factset outlook for $ 27.53 billion. Sales in the same store increased by 3.6%, below 4.7% FactSet guidance.

The results put the Home Depot share price on track for the biggest one-day decline after more than a decade's income.

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Home Depot's CEO blamed the lack of timing on the benefits of business investment.

"We are largely on track with these investments and have seen positive results, but some of the benefits expected for the 201

9 fiscal year will take longer to realize than our original assumptions," he said in a statement.

As a result, the company updated its full-year direction and now expects sales growth of 1.8% with sales growth of 3.5% compared to previous guidelines for 2.3% sales growth and sales growth of 4% in the same store. [19659002] Analysts are still bullish. Raymond James says mortgage rates are now about 100 points lower than last year and existing home sales are positive, which will work in Home Depot's favor.

"With the company gently reducing expectations during Q4 2019 and assumes no improvement in two-year stacked comp (despite an improved macro), we see Q4 as to great d electricity discouraged, ”says analyst led by Matthew McClintock. "We think Home Depot should be bought on weakness."

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Raymond James prices Home Depot stocks outperform better .

Even with the better macroeconomic environment, GlobalData Retail says Home Depot has to contend with a resurgent Lowe's Cos.

LOW, -1.58%

"Sure there has been no major erosion in Home Depot's market share, but the visibility for Lowe has improved and we believe that market growth is now more shared evenly between the two main players, "wrote Neil Saunders, CEO of GlobalData in a note.

" This trend is likely to continue for the foreseeable future and Home Depot will now have to contend with a more determined and aggressive rival. "

Lowe's share is lower by Home Depot, down 1.1% during Tuesday trading, but up 24.5% over the past year.

Lowe's is scheduled to report third-quarter earnings on Wednesday during the premarket.

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Home Depot will be able to hold on to its market dominance with the help of the mentioned investments. Saunders believes that the spending, which goes toward store improvements and the transition to a more multi-channel shopping experience, will pay off.

But while Home Depot is willing to spend, consumers are a bit less.

"The number of people performing various large Do-it-yourself activities are not growing as fast as it was this time last year, and this is probably one of the reasons sales numbers are more modest than expected, "Saunders said.

"Concern is that this trend will intensify until 2020 when consumer finances come under more pressure – which may weigh on Home Depot's future prospects."

CFRA also does not see an easy way forward.

"We see not a significant growth going forward, given that Home Depot will enter the slower six months of the year, "wrote Kenneth Leon. Concerns include tariffs, lower timber prices and the sales benefits that will arise from the company's e-commerce upgrades.

"Despite improved existing home sales, Home Depot sees only stable demand for home improvement products," he said. CFRA rates Home Depot shares sell but raised their price target to $ 210 from $ 202.

Home Depot shares has gained 30.7% in the last 12 months while the Dow Jones Industrial Average

DJIA, -0.36%

is almost 12% for the period.


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