Home Depot (HD 192.87, -1.27, -0.66%) was up 2% premarket after the company reported better than expected second quarter results and raised guidance for the year.Comparable store sales grew 8% (more than 1% above estimates), the highest level in five years. Comp sales were expected to rebound after cool temperatures in April resulted in the company missing estimates on the top line for the first time in seven quarters. First quarter comps grew 4.2%, the lowest level in three years. HD opened lower and has continued to fluctuate.
According to Craig Menear, Chairman, CEO and President: "Not only did our seasonal business rebound from the first quarter, but our overall results exceeded our expectations."Home Depot raised EPS growth for the year to 29.2% from 28%; revenue growth to 7% from 6.7% and comp growth to 5.3% from +5%.
Sentiment around the housing sector has soured in recent weeks. While June Pending Home sales grew 0.9%, beating estimates, New Home Sales fell 5.3% in June, the largest monthly drop since December. Second quarter results from building materials companies also disappointing investors. Both the SPDR S&P Homebuilders ETF (XHB), which represents the housing sector, and the iShares US Home Construction ETF (ITB), which is just homebuilders hit year-to-date lows yesterday.
- Some building materials supplier stocks: BECN, BLD, BLDR, BMCH, CSTE, DOOR, FBHS, FBM, IBP, JCI, JELD, MAS, OC, PGTI, SHW, TREX, WHR
- Homebuilding stocks: BZH, DHI, GRBK, HOV, KBH, LEN, LGIH, MDC, MHO, MTH, NVR, PHM, TBPH, TOL, TP
July Housing Starts data will be released on Thursday morning. Home improvement rival Lowe's (LOW) will report second quarter results next Wednesday -- the first quarterly report since Marvin Ellison left J. C. Penney (JCP) to become CEO. Home Depot will host a call at 9:00 this morning.
The stock trades at ~20x EPS estimates while Lowe's (LOW) trades closer to 18x EPS. Home Depot has earned the premium by consistently outperforming its rival in terms of top and bottom line growth. Home Depot investors would like to see the stock eclipse the June/July highs in the not too distant future in order to avoid forming a topping pattern.