Home improvement retailers Home Depot (HD) and Lowe's (LOW) are scheduled to report results of their fourth quarters before the market open on Tuesday, February 22, and Wednesday, February 23, 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:

1. HOUSING MARKET COMMENTARY: Despite strong buyer demand, builder sentiment continued to slip in February amid ongoing building material production bottlenecks that are raising construction costs and delaying projects. Builder confidence in the market for newly-built single-family homes moved one point lower to 82 in February, marking the second straight month that confidence levels have declined by a single point, according to the NAHB/Wells Fargo Housing Market Index released on February 16. “Production disruptions are so severe that many builders are waiting months to receive cabinets, garage doors, countertops, and appliances,” said NAHB Chairman Jerry Konter.

2. SUPPLY CHAIN ISSUES: With builders continuing to report supply chain problems that are causing construction delays, overall housing starts decreased 4.1% to a seasonally adjusted annual rate of 1.64 million units, according to a report from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. At the same time, building permits increased at a solid pace in January, according to the report.

In January, Truist analyst Scot Ciccarelli assumed coverage of Lowe's with a Buy rating with a price target of $293, up from $284. The analyst cites key industry drivers including supply/demand imbalances in the housing market, pandemic-driven behavioral changes, and aging housing infrastructure that are expected to drive "significant incremental home improvement growth." Truist's Ciccarelli also assumed coverage and upgraded Home Depot to Buy from Hold with a price target of $448, up from $420. The analyst is positive on key industry drivers including supply/demand imbalances in the housing market, pandemic-driven behavioral changes, and aging housing infrastructure driving significant incremental home improvement growth.

3. EXECUTIVE CHANGES: Home Depot, on January 27, named Ted Decker as CEO and president, and has been elected to the company's board of directors, all effective March 1, 2022. Craig Menear, currently chairman and CEO, will continue to serve as Chair of the Board. "As a 22-year associate of The Home Depot, Ted has nurtured our culture by living our values and demonstrating servant leadership throughout his career," said Menear. Decker joined The Home Depot in 2000 and was named president and chief operating officer in October 2020.

4. POSITIVE TACTICAL TRADING CALL: Evercore ISI analyst Greg Melich initiated a positive tactical trading call on Lowe's ahead of its Q4 earnings report on February 23. Melich noted that Lowe's already guided for 2022 during their analyst day in December and he sees limited risk that management would reduce the range now, while adding that fundamentals have improved since their original guidance was issued. The firm's Home Improvement Leading Indicator has improved for two consecutive months and Lowe's web traffic is approximately 60% higher today than it was pre-pandemic, but despite these "reasonably positive trends," the stock is down 15% since the analyst day in December and 13% year-to-date.

Meanwhile, Baird analyst Peter Benedict kept an Outperform rating and $285 price target after holding meetings with Lowe's CFO Dave Denton and other directors. Management "struck a positive tone on current demand," and while risks around rates and labor productivity bear watching, the company's FY22 operating plan offers "more upside than downside," Benedict said.

5. LOWE'S GUIDANCE: In December, Lowe's forecast fiscal 2021 revenue of $95B, with comparable sales growth on a two-year basis of approximately 33%. Lowe's also forecast fiscal 2022 earnings per share of $12.25-$13.00 on revenue of $94B-$97B and comparable sales down 3% to flat. At the time, Lowe's announced a new $13B share repurchase program due to its confidence in the company's continued growth trajectory and cash flow generation capabilities.