IBD Stock Analysis
- Home Depot stock is just below a 259.39 buy point.
- Shares broke out from a cup-with-handle base in May.
- But the relative strength line has largely moved sideways.
Industry Group Ranking
* Not real-time data. All data shown was captured at 1:23PM EDT on 07/17/2020.
Home Depot (HD), IBD’s Stock of the Day, is teasing another breakout, just two months after clearing a prior base, as coronavirus stay-at-home orders inspired many people to make upgrades around the house and yards. Home Depot stock cleared a buy point intraday.
Shares of the home-improvement retailer rose 0.4% to 259.09 in the stock market today, back below a 259.39 buy point from a flat base after rising as high as 260.19 earlier in the session. Friday’s advance follows a breakout from a cup-with-handle base in May.
And as the coronavirus crisis appears to hasten the downfall of other retailers, Home Depot stock is up 19% so far this year, despite getting gouged with the broader market in March.
Rival Lowe’s (LOW) also has strong IBD ratings. Lowe’s stock has Composite and EPS ratings of 96. Shares ticked 0.4% higher on Friday.
Home Depot and Lowe’s are up after the Commerce Department reported on Friday that construction of new homes jumped 17.3% in June to an annualized pace of 1.19 million units, marking the second straight monthly gain after diving in March in April. But housing starts are still 4% below last year’s pace. Meanwhile, building permit applications, a sign of future activity, rose 2.1% to 1.24 million units.
Improvement Rush Lifts Home Depot Stock
Home Depot in May reported a 7.5% increase in first-quarter U.S. same-store sales, an acceleration from the prior four quarters.
Overall revenue for the first quarter rose 7.1% to $28.3 billion, helped by investments in digital ordering and pickup-in-store service.
“(During) the last three weeks of the quarter, while maintaining safety protocols around distancing and proactively restricting customer traffic in stores, we saw strong comps across most of our departments, as customers focused on a number of home improvement projects,” Ted Decker, Home Depot’s executive vice president of merchandising, said on the company’s first-quarter earnings call in May.
The company in May shied away from trying to call out any trends from its first-quarter results. Still, management said it had seen “strength” at the open of the second quarter.
But that was before rising coronavirus cases raised fresh concerns about the economic rebound. Home Depot stock sank with the broader market on June 11 on the spike in infections.
Home Depot’s first quarter, which ended May 3, was also bumpy. In the first several weeks of the quarter, same-store sales jumped as customers stocked up on cleaning and security products, management said on the call.
From late March into mid-April, those sales fell while Home Depot began closing stores earlier and limiting the number of people inside. The company also canceled its annual spring events, like Spring Black Friday, when it slashes prices for things like furniture, appliances and kitchen and patio supplies. Home Depot also suspended installations, like kitchen remodels.
But by the end of April, growth in the company’s digital business ran into the triple digits. During the last three weeks of the quarter, website traffic was “consistently” higher than the volume the company gets on Black Friday.
Comparable purchases for big-ticket items, or those over $1,000, rose 2.5%, helped by demand for riding mowers and appliances. But management saw weakness in special-order kitchens, flooring and countertops. In those segments, the company “intentionally limited these installation services in customers’ homes.”
“We continue to see significant pressure in products requiring installation services like kitchen & bath and flooring,” Decker said.
Home Depot stock fell after the earnings report.
Jefferies data shows that while foot traffic to other retailers fell through March and April, it rose at hardware shops like Home Depot and Lowe’s, peaking in May and trailing lower through the summer.
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