Although Wall Street has sent Home Depot's (HD) stock down 7% in the past three months amid slowing sales trends in the U.S. housing market, the company's long-time CFO Carol Tome thinks investors need to keep things in perspective.
"I think they [investors] are trying to determine if it's over [home remodeling cycle], are we out of gas. The answer is no. We [U.S. housing market] aren't fully recovered first of all. Secondarily, even when you reach full recovery, home prices don't stagnate -- we are having household formation in this country. As there is demand, prices will increase," explained Tome in an interview with TheStreet.
Still, Wall Street continues to challenge Home Depot's upbeat assessment of housing.
Home Depot shares fell as much as 2.6% Tuesday despite third-quarter earnings coming in at $1.60 a share, beating analysts' forecasts of $1.58. Net sales rose 6.1% to $23.2 billion, ahead of estimates for $23 billion. U.S. same-store sales rose a solid 5.9% from the prior year.
The company raised its full-year earnings forecast to $6.33 a share from $6.31 a share.
In large part, the world's largest home-improvement retailer has the prolonged increase in home values to thank for its better-than-expected results. Rising U.S. home values are leading people to view investing in remodeling their homes as a wise decision. "Our customer is looking at his or her home and saying it's worth more today than it was yesterday. So their home has more value, there is a wealth effect," said Tome.
The national median single-family home price reached $240,900 in the third quarter, up 5.2% from $228,900 a year ago and the last quarter's $240,700, according to the National Association of Realtors. It marked a peak in the quarterly median sales price. Overall, the median existing single-family home price increased in 87% of the 178 metro markets that were measured.
Subsequently, the National Association of Home Builders recently said its home remodeling index rose four points to 57 in the third quarter. Anything over 50 signals an improvement.
"Home Depot's markets are still outperforming," noted Credit Suisse analyst Seth Sigman in a note ahead of the results. In particular, Sigman noted still healthy housing markets where Home Depot has a store nearby are continuing to fuel demand from contractors, and among consumers for appliances and other items online. Home Depot told analysts on a conference call that sales to contractors -- which Home Depot calls 'Pro' customers -- outpaced the company's overall same-store sales increase and that sales of appliances rose by a double-digit percentage.
It's easy to see why the market would be skittish on Home Depot and rival Lowe's (LOW) , whose stock has plunged about 14% over the past three months.
Existing home sales reached a post Great Recession peak in June, and softened a little during the summer. Meanwhile, new home sales in September missed Wall Street forecasts by roughly 1.1%, while sales for August were revised down sharply to a 575,000 pace from a prior estimate of 609,000.
Tome says Home Depot remains on track to reach $101 billion in annual sales by 2018, a target it laid out in December 2015.
TheStreet spoke with Tome about what is making Wall Street skittish about home improvement stocks and the threat of higher interest rates under a President Trump.
Home Depot CFO Carol Tome.