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.

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Apple is testing the upper line of the symmetric triangle.

Home Depot locked in the sideways trend, waiting for a breakout.

McDonald’s defending the neckline of the H&S formation.

Netflix aiming for the lower line of the rectangle.

Pfizer with a false bullish breakout.

Prudential enjoying the buy signal after the breakout of the upper line of the triangle.

Tesla testing the lower line of the triangle.

Western Digital with a fresh buy signal coming from the breakout of a major resistance.

Micron Technology enjoying a proper buy signal after making new long-term highs.

For a look at all of today’s economic events, check out our economic calendar.

E-mini S&P 500 Index (ES) Futures Technical Analysis – Needs to Close Over 3379.75 to Sustain Rally

September E-mini S&P 500 Index futures are expected to open higher based on the pre-market trade. Supporting the rally are bullish earnings reports from Home Depot and Walmart, which are setting an upbeat tone ahead of the cash market opening.

The benchmark futures contract hit a record high during Asian trading hours but later lost steam as caution over a Sino-U.S. spat grew after President Donald Trump announced further restrictions on tech giant Huawei Technologies Co.

At 12:07 GMT, September E-mini S&P 500 Index futures are trading 3384.25, up 4.50 or +0.13%.

Home Depot rose 2.8% in the premarket, putting it in a position to set a record high. Wal Mart shares shot higher by 5.5% in premarket trading.

In other news, retailer Kohl’s lost 25 cents per share for its latest quarter, smaller than the 83 cents a share loss that Wall Street analysts had anticipated. Auto parts retailer Advance Auto Parts earned $2.92 per share for the second quarter, well above the $1.98 a share consensus estimate.

Daily September E-mini S&P 500 Index

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. The uptrend was reaffirmed when buyers took out the last high at 3382.50 earlier in the session.

The main trend is safe for now. It will change to down on a move through 3195.00. This is highly unlikely, but due to the prolonged move up in terms of price and time, the index remains inside the window of time for a potentially bearish closing price reversal top.

The new minor range is 3319.50 to 3388.75. Its 50% level at 3354.00 is the nearest support. Look for the short-term upside bias to continue as long as this level holds. This level is dynamic so it will move up if the market continues to make higher-highs.

The short-term range is 3195.00 to 3388.75. The minor trend will change to down on a trade through 3319.50. If it does then momentum will shift to the downside with the retracement zone at 3291.75 to 3269.00 the next likely downside target.

Daily Swing Chart Technical Forecast

Given the early price action, the direction of the September E-mini S&P 500 Index on Tuesday is likely to be determined by trader reaction to 3379.75.

Bullish Scenario

Holding above 3379.75 will indicate the presence of buyers. If this creates enough upside momentum then look for buyers to make a run at the February 20 main top at 3396.50. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained move under 3379.75 will signal the presence of sellers. This could trigger a break into the minor 50% level at 3354.00.

A close below 3379.75 will form a closing price reversal top. If confirmed, this could trigger a 2 to 3 day correction.

For a look at all of today’s economic events, check out our economic calendar.

Home Depot Q2 Sales Jump Over 23% Amid COVID-19 Restrictions; Target $320

Home Depot Inc, the largest home improvement retailer in the United States, reported sales of $38.1 billion for the second quarter of fiscal 2020, a 23.4% increase from a year earlier as consumers ordered more home improvement products amid COVID-19 restrictions, sending its shares up about 3% in pre-market trading on Tuesday.

The home improvement retailer said its net earnings for the second quarter of fiscal 2020 were $4.3 billion, or $4.02 per diluted share, compared with net earnings of $3.5 billion, or $3.17 per diluted share, a year earlier.

For the second quarter of fiscal 2020, diluted earnings per share increased 26.8% from the same period in the prior year.

Home Depot also announced that its board of directors declared a second-quarter cash dividend of $1.50 per share.

Home Depot shares rose about 3% to $295.70 in pre-market trading on Tuesday after ending 2.7% higher at $288.24 a day before. The stock is up over 30% so far this year.

Executive comments

“The investments we have made across the business have significantly increased our agility, allowing us to respond quickly to changes while continuing to promote a safe operating environment. This enhanced our team’s ability to work cross-functionally to better serve our customers and deliver record-breaking sales in the quarter,” Craig Menear, chairman, CEO and president said in a press statement.

“We remain focused on continuing the momentum of our One Home Depot investment strategy that we believe will position us for continued growth over the long-term, while at the same time maintaining the flexibility to navigate the demands of the current environment. Through it all, we will continue to lead with our values by doing the right thing and taking care of our people.”

Home Depot stock forecast

Twenty-three analysts forecast the average price in 12 months at $283.33 with a high forecast of $320.00 and a low forecast of $221.00. The average price target represents a -1.70% decrease from the last price of $288.24. From those 23, 15 analysts rated “Buy”, eight rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley target price is $285 with a high of $380 under a bull scenario and $185 under the worst-case scenario. BofA Global Research raised price objective to $290 from $270, Oppenheimer raised target price to $320 from $274 and Credit Suisse raised it to $300 from $269.

Other equity analysts also recently updated their stock outlook. Home Depot had its price target upped by stock analysts at Raymond James to $295 from $250. The firm currently has an “outperform” rating on the home improvement retailer’s stock. Truist Securities raised their price objective on Home Depot from $300 to $240.

We think it is good to buy at the current level and target $320 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst view

“We are Overweight HD given its best-in-class nature and structural housing tailwinds beyond N-T disruption from COVID-19. The stock seems attractively valued in the context of a potential 2H’20/2021 economic/housing recovery,” said Simeon Gutman, equity analyst at Morgan Stanley.

Upside and Downside risks

Upside: 1) Housing market relatively stable through COVID-19 headwinds. 2) Initiatives gain momentum and drive top-line acceleration in 2020-2021 – highlighted by Morgan Stanley.

Downside: 1) A slowdown in the home improvement market. 2) Greater than expected interest rate hike. 3) Departure of key leadership.

‘No Company is Entirely Immune From a COVID-19 Led Economic Slowdown’ Says Fidelity’s Simnegar

No business is completely immune from a COVID-19 led economic slowdown and the ongoing global pandemic isn’t affecting all industries and its stocks in the same way, said Sammy Simnegar, portfolio manager in the equity division at Fidelity Investments.

So far, the deadly coronavirus has infected over 14 million people in 188 countries and killed more than 600 thousand, impacting day-to-day businesses worldwide.

“We shouldn’t think of how COVID-19 is affecting the stock market in monolithic terms because the opportunities and risks are very different at the company level… we try to identify the potential ‘winners’ and ‘losers’ in a post-pandemic world,” noted Fidelity’s Simnegar.

Microsoft

Fidelity’s Simnegar thinks Microsoft is resilient. Microsoft has two main businesses – its Office software suite and its Azure cloud-services operation. Because Office and Azure help customers to be more productive and competitive, Simnegar believes spending on these products is not likely to be hurt much by an economic slowdown, Fidelity noted.

Twenty-four analysts forecast the average price of Microsoft in 12 months at $219.11 with a high forecast of $260.00 and a low forecast of $190.00. The average price target represents an 8.00% increase from the last price of $202.88. From those 24, 23 analysts rated ‘Buy’, one rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $230 with a high of $290 under a bull scenario and $150 under the worst-case scenario. We think it is good to buy at the current level and target at least $230 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Amazon

Amazon is another name Simnegar thinks could continue to take market share during this uncertain time. The company’s logistical advantages allow it to ship essential items to Amazon Prime customers with same-day shipping, Fidelity noted.

Thirty-nine analysts forecast the average price of Amazon in 12 months at $2,991.34 with a high forecast of $3,700.00 and a low forecast of $1,987.00. The average price target represents a 0.99% increase from the last price of $2,961.97. From those 39, 36 analysts rated ‘Buy’, two rated ‘Hold’ and one rated ‘Sell’.

Morgan Stanley target price is $3,450 with a high of $4,200 under a bull scenario and $2,200 under the worst-case scenario. We think it is good to buy at the current level and target at least $3,400 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Facebook and Google

Large media and entertainment holdings in the fund as of the end of May included Facebook and Google-parent company Alphabet. Simnegar thinks usage of these services has increased among many customers since they started sheltering at home due to COVID-19.

Thirty-four analysts forecast the average price of Facebook in 12 months at $257.04 with a high forecast of $300.00 and a low forecast of $185.00. The average price target represents a 6.20% increase from the last price of $242.03. From those 34, 29 analysts rated ‘Buy’, five rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $270 with a high of $325 under a bull scenario and $185 under the worst-case scenario. We also think it is good to buy at the current level and target at least $270 as 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity. Check this for Google stock forecast.

Others

Other top holdings included credit card companies Visa and MasterCard, as well as Home Depot. The first two continued to ride the strong secular trend toward electronic payments, while Home Depot has benefited from customers who have spent more time in their homes and, therefore, have dedicated more money toward home improvement, Fidelity noted.

Home Depot Inc (NYSE:HD) Shares Dive After It Announces Its Q1 Financial Results

According to the report, Home Depot managed to outperform analysts’ expectations as far as earnings are concerned but its sales were lower than expected. The poor sales performance has been attributed to the unfavorable spring weather which heavily affected the company’s gardening business.

“We are pleased by the strength of our business despite a slow start to the spring selling season. Outside of our seasonal business, we had solid results in all markets and categories and are seeing strong momentum in all lines of business during these first few weeks of May,” stated Home Depot CEO, Craig Menear.

Minear also acknowledged that the sales miss had a lot to do with the garden story and that the company missed the mark by a smaller margin than they had anticipated. Home Depot’s same-store sales declined by 4.2 percent which was significantly lower than the 5.2 percent anticipated decline. The firm grew by 6.5 percent excluding the garden business according to Home Depot executives, thus highlighting its massive impact.

Carol B. Tome, the Chief Financial Officer of Home Depot described the spring season as a reluctant bride. The company reported a revenue of $24.95 billion in Q1, 2018, marking a 4.4 percent increase compared to the revenue that it reported in the first quarter of the previous year. However, the figure fell short of the $25.15 billion revenue estimate by Thomson Reuters.

Home Depot’s net income in Q1, 2018 was $2.08 per share, or $2.40 billion, thus marking a noteworthy improvement compared to the net income of $1.67 per share equivalent to $2.01 billion that the company reported in Q1 of the previous year. However, customer transactions dropped by 1.3 percent during the quarter despite shoppers spending $66, 5.9 percent more than they did in Q1 of 2017. The announcement of these figures seems to have rubbed stakeholders the wrong way following the slight decline in the value of the company’s stock.

Just a week ago, analysts at research firm Jefferies lowered their estimates for the retail giant as a result of the unfavorable spring weather. The analysts also expect shoppers not to abandon their projects but rather to push them forward to the summer season. The past year has been a relatively good year for Home Depot as a result of favorable economic performance and a strong housing market.

Meanwhile, the future outlook seems positive owing to different factors, among them being the improved weather conditions which should spearhead a recovery. Home Depot has also been strengthening its e-commerce strategy. The retail firm also revealed that it has launched a 2-hour delivery program and that it expects same-store sales to surge by 5 percent.

The company also plans to change how it records revenue for its private label gift cards and credit cards. Regardless of the slow performance reported in Q1, Home Depot is optimistic about better performance for the rest of the year.