2 Reasons Home Depot Shares Are Rising Post Earnings

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Home Depot  (HD) - Get Report shares rose as management reaffirmed 2020 revenue guidance. A strong consumer and housing market didn’t hurt either.

The stock rose 3.09% to $247.10 a share Tuesday after earnings.

RealMoney's Bruce Kamich says investors haven't missed out on all the gains yet. 

Before we dive into what investors liked, here were the results from the fourth quarter:

Earnings per share came in at $2.28, beating Wall Street estimates of $2.10. Revenue was $25.78 billion against estimates of $25.76 billion. Same-store-sales increased 5.2% against analysts estimates of 4.8%.

Importantly, management reaffirmed calendar year 2020 same-store-sales guidance of between 3.5% and 4%. In mid to late 2019, Home Depot had to cut same-store-sales guidance for the next year twice. The guidance was originally 5%, but investments in initiatives such as buy-online-pick-up-in-store (BOPIS) and making stores more efficient were weighing on sales expectations.

The stock fell 11.2% from mid November to mid December, before rising 10% for 2020 leading into earnings, making the stock essentially flat since mid November.

Also, mortgage rates have fallen, spurring home-buying, a tailwind for Home Depot sales. The Federal Reserve cut interest rates three times in the second half of 2019 to support the economy, while the Coronavirus’ negative economic impact has prompted investors to rush into treasuries, bring yields in the entire bond market down. Strategists have noted that housing data has ticked up as low rates are now flowing through, aiding the consumer. The average 30-year fixed mortgage rate is now at 3.25%, compared with 4.7% in early to mid 2019.

Home Depot CEO Craig Menear noted on the earnings print “the overall health of the consumer.”

Analysts at JPMorgan perhaps best summed up the earnings print in a line:

"The combination of the housing backdrop and HD’s ability to gain share (we suspect in e-commerce this shortened holiday season) drove the strong result that were ultimately slightly better than the implied same-store-sales guide for 4Q."   

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