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Aug 20, 2019

Home Depot shares gain as sales were better than Wall Street feared

Home Depot sales growth shows it's defying 'retail apocalypse'

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Home Depot Inc. (HD:US) rose as much as 3.9 per cent, the most intraday since Dec. 26, after the home improvement retailer’s second-quarter results broadly cleared investor expectations -- or at least, were no worse than expected by Wall Street.

Analysts were unfazed by the full-year cut to comparable-store sales, which was expected amid lumber price deflation and tariffs, hinted at by the company on its first-quarter earnings call. Wall Street saw the 3.1 per cent growth in U.S. comparable store sales as either in-line or better than feared, and analysts were pleased the company was able to maintain its annual earnings target.

Morgan Stanley’s Simeon Gutman noted that Home Depot “has attained a ‘safe haven’ status in this choppier market” -- which is a testament to how “well managed the business is and its strong perceived positioning over the medium term.”

Peer Lowe’s Cos. Inc., which reports results Wednesday, gained as much as 3 per cent on the heels of the Home Depot report.

Here’s more of what Wall Street said after the earnings:

Morgan Stanley, Simeon Gutman

- The 3.1 per cent growth in U.S. comp. sales was “respectable,” clearing the market’s expectation, the exit rate was solid, while the full-year comp. sales cut wasn’t a surprise, the analyst wrote in a note
2Q earnings quality was “good”
- The focus now turns to the implied second-half comp. sales acceleration
- Rates overweight, PT US$210

Guggenheim, Steven Forbes

- Operating results were “solid,” with both Ebit and EPS coming in ~2 per cent-3 per cent ahead of Guggenheim’s estimates; comp. guidance revision was expected
- Performance was driven by better-than-expected expense control
- Incremental color (and conviction) on today’s earnings call regarding the potential impact of business investments will “likely be essentially for sustained outperformance as we move through 2H 2019”
- Sees limited risk to full-year EBIT/EPS estimates; rates buy, PT US$230

Baird, Peter Benedict

- U.S. comp. growth of 3.1 per cent missed Baird’s 3.5 per cent estimate, but were “likely no worse (and perhaps even better) than feared given softer macro indications, and HD noted acceleration across the quarter,” Benedict wrote
- As expected, the year comp. sales view was trimmed (Street models were already there) but EPS guide held and likely reflects “some conservatism”
- Visibility into implied 2H comp acceleration (~5 per cent) is the key question
- Rates outperform, PT US$220

SunTrust, Keith Hughes

- Forecast implies a “substantial pickup” in sales in the second half of the year, although management discussed momentum
- Expects a “modestly positive reaction in that sales results were not weaker”
- Rates hold, PT US$180