Home improvement retailers Home Depot (HD) and Lowe's (LOW) are scheduled to report results of their fourth quarter before the market open on Tuesday, February 23, and Wednesday, February 24, 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: Strong buyer demand helped offset supply chain challenges and a surge in lumber prices as builder confidence in the market for newly-built single-family homes inched up one point to 84 in February, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index. “Lumber prices have been steadily rising this year and hit a record high in mid-February, adding thousands of dollars to the cost of a new home and causing some builders to abruptly halt projects at a time when inventories are already at all-time lows,” said NAHB Chairman Chuck Fowke. “Builders remain very focused on regulatory and other policy issues that could price out households seeking new homes in a tight market this year.”

2. COMP ESTIMATES BOOSTED TO STREET HIGH: Last week, JPMorgan analyst Christopher Horvers raised his Home Depot and Lowe's comp estimates for Q4 to a Street high. His Q4 U.S. comp estimate for Home Depot is now at 26% versus the Street's 18.5%, and his Lowe's U.S. estimate is at 29% versus the 20.5% consensus. Guidance "remains a big question," but either way, the Street seems low on Home Depot, Horvers tells investors in a research note. He lowered the firm's price target on Home Depot to $294 from $296 and keeps an Overweight rating on the shares. Horvers keeps a Neutral rating on Lowe's with a $181 price target.

3. 'POTENTIALLY CONSERVATIVE' EXPECTATIONS: Guggenheim analyst Steven Forbes upgraded Home Depot to Buy from Neutral with a $310 price target. The analyst cites the closing of the deal for HD Supply, the company's recent $3B debt offering, and the "recent moderation" in valuation for the upgrade, telling investors that he thinks consensus expectations for 2021 now look to be "reasonable and potentially conservative" given the tailwind from the healthy backdrop for housing.

4. UNWINDING OF 'NESTING' TRENDS VS. PRO SEGMENT IMPROVEMENTS: KeyBanc analyst Bradley Thomas downgraded Lowe's to Sector Weight from Overweight without a price target due to the risk of an unwind of "Nesting" trends and valuation. While Thomas sees "Nesting" share of wallet trends remaining strong in 1H, the analyst believes fundamentals and sentiment are likely to see challenges in 2H as COVID-19 dynamics dissipate and consumers return to spending on "experiences" at the expense of "things."

Previously, R5 Capital analyst Scott Mushkin upgraded Lowe's to Buy from Hold with a $195 price target following a recent visit to a reconfigured store that suggested to him that the company has greatly improved adjacencies and ease of shop, especially for Pro customers. Lowe's "is finally in the game with Home Depot regarding the Pro customer," argues Mushkin, who also sees Lowe's having an opportunity to close the productivity gap with Home Depot (HD). He also thinks that housing can stay strong and Lowe's valuation remains "reasonable," Mushkin added.

5. LOWE'S GUIDANCE: In December, Lowe's backed its Q4 adjusted EPS view of $1.10-$1.20 on revenue growth of 15%-20% and Q4 SSS growth view of up 15%-20%. The company also forecast FY20 adjusted EPS $8.62-$8.72 on revenue growth of approximately 22% and comp sales up approximately 23%. The company also forecast "robust" levels of free cash flow in 2021.