MorningWord 2/25/14: Home Improvement – $HD

by Dan February 25, 2014 9:27 am • Commentary

This morning, Home Depot reported Q4 earnings that were above expectations despite numerous headwinds, including weak housing data, a higher mortgage rate environment and nasty weather for much of the country.  While same store sales came in slightly below estimates, I think it is safe to assume that expectations were not running particularly high heading into the print, as evidenced by the stock’s inability to keep pace with the S&P 500, which made a new intra-day high yesterday.  Forward guidance is what most investors and analysts will focus on.  By most metrics it seemed a bit muted as the company guided the full year below consensus, which includes accretion from the remaining cash from their current $5 billion share repurchase.

The stock is up 2% in the pre-market.  I would suggest that the stock’s ability or inability to follow through on these gains may be the most important thing that happens today in the markets.  Looking back at the last 2 quarterly reports from November and August, the stock saw early morning gains.  In both cases, HD opened up about 2%, went up about 3%, and then closed on the lows of the day.

HD 7 month chart from Bloomberg
HD 7 month chart from Bloomberg

HD has been a long-time leader in the home construction retail sector, pushing out mom and pop hardware stores across America for the past couple of decades.  Today’s results are another indication that this is a well run giant that continues to out-compete its rivals, even in a tough macro environment.  The stock closed 2013 at an all-time high of $82.34. That’s the level to watch over the next couple weeks, after HD’s tough January performance.