Why Home Depot Stock Jumped 5% Today

Shares of Home Depot (HD 5.40%) surged today as the company edged out estimates in its third-quarter earnings report and reassured investors that the business was performing well under difficult macro conditions.

Additionally, the stock seemed to benefit from a cooler-than-expected inflation report. That makes it less likely that the Federal Reserve will raise interest rates again, which benefits Home Depot.

As a result, the stock finished today’s session up 5.4%.

Image source: Home Depot.

Home Depot delivers rock-solid results

The home improvement retail giant continues to struggle with the broader slowdown in the housing market. Same-store sales were down 3.1%, and revenue fell 3% to $37.71 billion, which was slightly better than the analyst consensus of $37.63 billion.

On the bottom line, earnings per share slipped from $4.24 to $3.81 as it lost leverage from lower sales and took a hit from lower commodity prices in some categories like lumber. However, that result was also better than estimates at $3.77.

CEO Ted Decker said the quarter was in line with the company’s expectations, and it continues to experience “pressure in certain big-ticket discretionary categories,” a sign that homeowners are being more cautious with interest rates up.

Guidance is clearer

For the full year, the company now sees a comparable sales decline of 3% to 4%, compared to a previous range of 2% to 5%. On the bottom line, it called for EPS to decline by 9% to 11%, compared to its earlier range of 7%-13%.

Investors seemed to applaud the results as the company hit its targets, and the October inflation report lifted the broader market and sparked a surge in real estate stocks.

Home Depot is directly exposed to interest rates because higher mortgage rates have cooled off home sales and made it harder to take out a home equity loan. As a result, sales have fallen this year. However, signs are increasing that the Fed could be done raising interest rates, which would be a big step toward a rebound in the housing market and for Home Depot’s business as well.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.

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