Home Depot (HD - Get Report) may just be the beneficiary of two key tailwinds. TheStreet's founder and Action Alerts Plus portfolio manager Jim Cramer said good spring weather usually gets people into Home Depot stores.
But there's another tailwind.
Lennar (LEN - Get Report) , a $16 billion market cap home builder, posted earnings per share of 74 cents, missing Wall Street's estimates of 75 cents. But management said that housing market conditions remain "favorable," which is certainly no surprise as the Federal Reserve likely keeps interest rates where they are for 2019. If there's some optimism on housing starts, more people will shop at Home Depot for their housing needs, which would be good for Home Depot sales, and likely earnings.
What Can We Learn?
While it's true that stocks often go up when companies beat earnings expectations, and often fall when companies miss expectations, that's not all there is to earnings.
A company can miss earnings expectations and see its stock move upwards. The most important indicator of whether a stock will go up is what to expect in the future. Lennar, in this case, missed quarterly earnings expectations and saw its stock move higher because management said it expects the housing market to remain solid. Now, investors can expect earnings growth for the next year or so to be in-line with or better than initial expectations. This is also why company guidance is so important.
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