Home Depot (big box home improvement retailer) garden center with shrubs and trees

Home Depot Slips Despite Topping Wall Street Forecasts

Home Depot, Inc. (HD) shares dipped 2.54% Tuesday despite the home improvement retailer posting better-than-expected quarterly earnings amid healthy ongoing stay-at-home spending during the pandemic.

The big-box retailing giant reported a third-quarter (Q3) profit of $3.43 billion, or $3.18 per share, on revenues of $33.54 billion. Analysts had expected EPS of $3.06, with sales of $32.04 billion. Moreover, the top and bottom line grew 23- and 24%, respectively, from the year-ago quarter. During the earnings call, the company said some of its temporary employee remuneration programs implemented in the wake of the health crisis will become permanent wage increases, resulting in $1 billion of additional expenses per year.

As of Nov. 18, 2020, Home Depot stock has a market capitalization of $306.73 billion, offers a 2.15% dividend yield, and trades 27% higher year to date (YTD). However, the shares have fallen 5.28% over the last month.

Focus on Professional Business

The impressive earnings come just one day after the company announced plans to acquire HD Supply – a former maintenance, repair, and operations (MRO) business it spun off in 2007. The $8 billion deal helps position the retailer as a leader in the commercial services market.

“That is a huge opportunity for the Home Depot to continue to grow, not only on the MRO side, but as we build relationships with customers on the MRO side, we build relationships to be able to participate in capital refreshes of those facilities as well, which is something that we’re pretty focused on,” CEO Craig Menear said, per CNBC.

Wall Street View

Telsey Advisory analyst Joseph Feldman upgraded the company to ‘Outperform’ from ‘Market Perform’ and bumped his price target to $315 from $300. Feldman sees further upside from strong business trends and the company’s acquisition of HD Supply.

Elsewhere on the Street, recommendations also favor the bulls. The stock receives 18 ‘Buy’ ratings, 3 ‘Overweight’ ratings, and 11 ‘Hold’ ratings. Just one analyst recommends selling the shares. Price targets range from as high as $350 to as low as $243, with the median $310 12-month target, representing a 14% premium to Tuesday’s $272.47 close.

Technical Outlook and Trading Tactics

Home Depot shares have remained stuck in a 30-point trading range since early August as investors have questioned whether the surge in home improvement spending is sustainable beyond the pandemic. Yesterday’s weakness may lead to further short-term declines as concerns mount over rising costs.

However, active traders who favor rangebound strategies should look for buying opportunities near the range’s lower trendline, where the price finds major support around $262. Those who open a long position at that level should consider protecting capital with a stop below $260 and targeting a move to the range’s opposing side at $292.

For a look at today’s earnings schedule, check out our earnings calendar.