Home Depot Trading Higher After Beating Estimates

Dow component Home Depot Inc. (HD) is trading higher by more than 2% in Tuesday’s pre-market after beating Q1 2021 top and bottom line estimates by healthy margins. The home improvement giant earned $3.86 per-share during the quarter, $0.93 better than estimates, while revenue rose a healthy 32.7% year-over-year to $37.5 billion, nearly $5 billion higher than consensus. Comparative sales grew 31% worldwide, with 29% growth in the United States.

Home Buying Boom

The company has benefited from intense pandemic tailwinds, with locked-down and socially-distanced customers using the crisis to engage in home improvement projects. While that catalyst is winding down at a rapid pace, COVID also triggered a major geographical shift at the same time that remote-working millennials are marrying and building their nests, underpinning a massive home building and buying spree that should last for several years, at a minimum.

Despite Home Depot’s stellar report, bullish sentiment could offer a better opportunity for rival Lowes Corp. (LOW), who reports Q1 earnings in Tuesday’s pre-market. Oppenheimer analyst Brian Negal embraced this strategy last week. noting this “more upbeat call on Lowe’s is largely tactical in nature and hinged upon prospects for a continued flow of funds into more cyclically focused equities and now historically discounted valuation versus that of Home Depot.”

Wall Street and Technical Outlook

Wall Street consensus on Home Depot now stands at an ‘Overweight’ rating based upon 21 ‘Buy’, 3 ‘Overweight’, 10 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $280 to a Street-high $377 while the stock is set to open Tuesday’s session about $24 below the median $350 target. A trip back up last week’s all-time high at $345.69 looks likely with this configuration but a breakout might not be in the cards.

Home Depot sold off from a 2020 high at 247 to a three-year low near 140 during the first quarter of 2020 and turned sharply higher, returning to the prior high in May. A June breakout stalled just below 300 in August while a March 2021 buying surge above that peak posted an all-time high last week.  A weekly Stochastic sell cycle makes a breakout unlikely in the second quarter but the long-term uptrend should eventually resume control of the ticker tape.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.