HP, Lowe's and Home Depot Report Next Week: Will the Rally Continue?

NEW YORK ( TheStreet) -- At one time Hewlett-Packard ( HPQ) was one of my favorite dividend-paying, long-term holds. When the company started playing musical CEO chairs, I bailed with a loss I thought was painful at the time.

Watching HP sink below $20 reaffirmed my belief in stop losses for long-term holds as well as quick trades. Along with HP, we have Dell ( DELL ), one of HP's biggest competitors reporting. Dell's earnings take a back seat to going private, but I include it to add flavor to HP. Along with the computer makers, I'll share my thoughts on the other three I will be watching. Let's see if we can make some money next week.

HPQ Chart HPQ data by YCharts

Hewlett-Packard ( HPQ)

Hewlett Packard is one of the leading global providers of computing and imaging solutions and services for business and home. The company is focused on capitalizing on the opportunities of the Internet and the proliferation of electronic services. Its major businesses include Imaging and Printing Systems, Computing Systems and Information Technology Services.

52-Week Range: $11.35 to $27.78

Price To Book: 2.2

Wall Street isn't expecting much this quarter. Earnings per share are expected to come in below last year for the same quarter. The earnings release is scheduled after the market closes on Wednesday.

The consensus estimate is currently 87 cents a share, a decline of 13 cents (13%) from $1 during the corresponding period last year. Analysts' estimates this quarter range from 78 cents, to a high of 93 cents per share.

In comparison, Dell is expected to produce 24 cents a share, backsliding 26 cents (52%) from 50 cents during the matching period in the previous year. Analysts' estimates this quarter for Dell range from 21 cents, to a high of 28 cents per share.

Analyst opinion is mixed with this company. Most of the analysts surveyed don't believe a buy or a sell is currently warranted. Right now, HP has 7 buy recommendations out of 33 analysts covering the company, 19 holds, and 7 recommend selling. As much as I would like to get long HP again, I'm not ready to move on it yet. What I really want to see is another pullback in price like the one we had in April.

So far 2013 is blowing most expectations away, and the trend is solidly bullish, and last year's dividend hike is likely to get repeated soon. HP's one-year return beats Dell's even after the buyout fight. The dividend payout ratio is small enough for HP to allow the board to raise the dividend, retire more debt, and or shrink the float.

After Cisco Systems ( CSCO) disappointed investors on Thursday, causing shares to dive over 7% lower as of Thursday's close, HP's upward momentum lost steam. If HP doesn't at least match last quarter's 87 cents in earnings, a retest of $24 is likely.

If HP does beat, and I think it will beat by at least 3 cents, it may still not be enough to propel shares higher because expectations are lower than last year. Basically, look for anything over 95 cents as the tipping point to carry shares higher. Analysts are calling for a price target of $24.83, so we can also expect rising analyst targets if HP delivers.

HP's dividend is modestly attractive at 58 cents a year for a yield of 2.1%. Short sellers aren't touching it, and only 2.3% of the float is shorted. This is comparable with Dell's 2.3% short interest.

HPQ Revenue Quarterly Chart HPQ Revenue Quarterly data by YCharts

LOW Chart LOW data by YCharts

Lowe's ( LOW)

Lowe's is a retailer of home improvement products in the world, with specific emphasis on retail do-it-yourself and commercial business customers.

52-Week Range: $25.97 to $46.25

Price To Book: 3.7

The upcoming second-quarter earnings are highly anticipated by hopeful investors expecting an earnings growth report before the market opens on Wednesday.

The analysts' consensus profit appraisal is presently 79 cents a share, an eye-popping gain of 14 cents (17.7%) from 65 cents during the corresponding quarter last year. Analysts' estimates this quarter range from 75 cents, to a high of 83 cents per share. I expect Lowe's to beat by 2 cents or more. Most of the "whisper" numbers I have looked at are 79 cents or 80 cents, putting my 81 cents a little bit over the ledge.

It's hard for me to get an authentic feel of Lowe's from an anecdotal perspective. I live in Eau Claire, Wis., home office of Menards and the chain's owner John Menard. Two well-placed Menards' stores have successfully kept Home Depot and Lowe's out of my shopping area.

From a year ago, Lowe's shares have rocketed 70% higher after making an inviting buyer's dip last July. Buying at this level feels a little too close to chasing, but a move near $42 should be viewed as an entry opportunity.

Interest rates are climbing but, by historical standards, remain incredibly low. Investors should expect housing to continue growing and with housing comes home improvement. In short, I don't think Lowe's run is over, but the volatility is high enough that if you wait for a retracement, you're likely to get it.

One fly in the soup could come from the Affordable Care Act, aka Obamacare. The mandatory insurance requirements will remove money from every space except health care. So we know it will have a negative impact, but what we don't know is how powerful of an impact.

The rules and implementation are so fluid, and without direction that my three year old son with a crayon can chart the impact as well as anyone. For now, I think the bark is worse than the bite, but you shouldn't count on anywhere near the same run Lowe's enjoyed last year, for the next year.

Analysts are calling for a price target of $46.05, and if Lowe's delivers the goods during the earnings release, expect analysts to race each other in raising it. Lowe's does pay a relatively small 72 cents in dividends for a yield of 1.6%.

Not a reason to buy, but a likeable bonus if you're ready to acquire shares anyway. Lowe's has raised the dividend about once a year over the past six years, so another increase should be expected soon. Forget about short sellers targeting home improvement, the short interest is only 1.7%. That's low enough to consider it a bullish indication.

LOW Revenue Quarterly Chart LOW Revenue Quarterly data by YCharts

HD Chart HD data by YCharts

Home Depot ( HD)

Home Depot, together with its subsidiaries, operates as a home improvement retailer.

52-Week Range: $54.97 to $81.56

Price To Book: 6.9

Home Depot investors are just as excited about the upcoming earnings release as Lowe's shareholders. Investors are expecting a growing report before the market opens on Tuesday.

The analysts' consensus profit appraisal is presently $1.21 a share, a gain of 20 cents (16.5%) from $1.01 during the corresponding quarter last year. The lowest analyst estimate this report is $1.15 per share, and the highest is $1.26 per share. If The Home Depot delivers at least the expected results this report, this quarter will also beat last quarter.

Over half the analysts covering Home Depot rate it as a buy or strong buy; 15 of the 26 analysts covering the company give a buy recommendation. Analysts, overall, have called this one correctly. In the last 12 months, the shares have accelerated higher with one year return of 42%. The average analyst current target price for The Home Depot is relatively more optimistic than Lowe's at $86.29.

All of my home improvement space thoughts for Lowe's apply equally to Home Depot. The biggest difference between the two is Home Depot has a store close enough that I can perform an occasional walk through for anecdotal purposes.

Home Depot pays a slightly higher yield than Lowe's. Investors are receiving $1.56 in dividends for a yield of 2%. Shares closed Thursday near support on the weekly chart and investors looking to buy on a dip have found it. Unless they blow it during earnings, expect the shares to work their way above $80 again relatively soon.

HD Revenue Quarterly Chart HD Revenue Quarterly data by YCharts

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Robert Weinstein is an active trader focusing on the psychological importance of risk mitigation, emotion and financial behavior of market participants. Robert co-founded the investing blog StockSaints, where he writes a journal about his trading activity and experiences.

In addition to TheStreet, Robert also contributes to Real Money Pro, providing real-time trading ideas for stocks, options and futures.