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Home Depot Shares Dip After Modest 2020 Sales Forecast

Home Depot said its 2020 sales growth will likely slow thanks in part to ongoing business investment and the impact of U.S. tariffs on China-made imports.

Home Depot Inc.  (HD) - Get Home Depot, Inc. (HD) Report shares edged lower Wednesday after the world's biggest home improvement retailer issued fresh 2020 sales guidance following last month's disappointing third quarter earnings.

Home Depot said it expects overall sales growth of between 3.5% and 4% next year, missing the Refinitiv forecast of 4.3%, with a similar range estimated for comparable store sales. Home Depot also reaffirmed its 2019 earnings guidance that sees growth of 3.1% from 2018's total of $10.03 per share.

"We are confident that the investments we are making in the One Home Depot experience will address the evolving needs of our customers," said CEO Craig Menear. "We are building on our distinct competitive advantages to capitalize on a large and fragmented market opportunity and extend our leadership position for years to come".

Home Depot shares were marked 1.14% lower in early Wednesday trading following the guidance update to change hands at $213.21 each, a move that would leave the stock with an S&P 500-lagging 24.17% gain for the year.

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"While we expect a modestly negative reaction to the updated guide today, the comp is in line with our existing 3.7% forecast and ultimately a lower bar given a new CFO and investment cycle are more prudent, in our view, especially after the past four quarters of choppier than historical comp outcomes relative to expectations," JPMorgan analysts said in a client note.

"Hence, we are hoping to hear elements of conservatism in Home Depot’s forecast, which we believe longer term investors will reward as the company’s investment cycle is positioning Home Depot for share and long term top and bottom-line success," the bank added.

Last month, Home Depot posted modestly stronger-than-expected third quarter earnings but trimmed its full-year sales guidance while cautioning that some of its investments won't pay off until 2020. 

Home Depot said it sees full-year sales rising 1.8%, down from a prior forecast of 2.3%, and sees comparable store sales growth of 3.5% compared to its earlier estimate of 4%. The group reaffirmed its full-year diluted earnings growth of 3.1% from last year's total of $10.03 per share.

In a conference call with analysts following the earnings release, Home Depot said the impact of U.S. tariffs on China-made imports added to cost increases over the quarter, an noted it remains "cautious on how tariffs could impact the consumer more broadly."