Here Is What Wall Street Is Saying About Home Depot And Lowe's Ahead Of Earnings
Home improvement retailers Home Depot (HD) and Lowe's (LOW) are scheduled to report results of their first quarters before the market open on Tuesday, May 17, and Wednesday, May 18, respectively. Home Depot's conference call is scheduled for 9:00 am EDT on Tuesday and Lowe's will hold its quarterly call on Wednesday at 9:00 am EDT. What to watch for:
HOUSING MARKET COMMENTARY: Ongoing lumber and building material supply side constraints, rising construction costs and expectations of higher interest rates continue to negatively affect builder sentiment even as buyer demand remains relatively solid. Builder confidence in the market for newly built single-family homes moved two points lower to 79 in March from a downwardly revised reading in February, according to the National Association of Home Builders/Wells Fargo Housing Market Index. It was the third straight month that builder sentiment has declined and the first time that the HMI has dipped below the 80-point mark since last September. NAHB Chief Economist Robert Dietz commented that "Builders are reporting growing concerns that increasing construction costs and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market. While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022."
TACTICAL UNDERPERFORM: Evercore ISI analyst Greg Melich initiated a tactical underperform trading call on Lowe's and added the stock to the firm's "Tactical Underperform" list ahead of the company's Q1 earnings report on Wednesday. While he maintains an Outperform rating on Lowe's due to the company's ongoing operational improvements, incremental profitability enhancements, and secular home improvement tailwinds, he forecasts that Q1 sales likely underperformed those of peer Home Depot to start the year.
Q1 OUTLOOK: Gordon Haskett analyst Chuck Grom downgraded both Home Depot and Lowe's to Accumulate from Buy. While he remains constructive on the long-term viability and growth prospects for companies he covers with home furnishings and home improvement exposure, Grom thinks underwriting stable-to-accelerating comp trends from the first quarter of this year through to the end of the year is "too optimistic" so he is discounting a higher degree of uncertainty with his updated ratings and price targets.
In April, Lowe's backed its FY22 outlook provided in February calling for EPS of $13.10-$13.60 on revenue of $97B-$99B, with comp sales down 1% to up 1%. Previously, Lowe's EPS outlook had been $12.25-$13.00 and its revenue outlook had been $94B-$97B.
'RECORD' MARKDOWN SEASON: Piper Sandler analyst Peter Keith sees "three factors converging all at once" in the first half of 2022 to create potential for a record markdown season in outdoor durable goods. This includes falling consumer demand for home goods, elevated inventory levels and unfavorable spring weather, Keith tells investors in a research note. The analyst sees the greatest Q2 markdown and gross margin risk for Home Depot and Lowe's, he said.
EXECUTIVE CHANGES: In April, Lowe's named Brandon Sink as chief financial officer, effective April 30, succeeding Dave Denton, who stepped down to pursue another opportunity. "Brandon is a highly accomplished executive, and we are excited for him to take on the role of CFO," said Marvin Ellison, Lowe's chairman, president and CEO. "During his nearly 12-year career at Lowe's, Brandon has worked closely with our executive leadership team and has demonstrated a deep understanding across all facets of our business."
Disclosure: None