Home Depot's Earnings Bar Lowered After Lowe's (HD, LOW)

The Home Depot, Inc. (NYSE: HD) is set to report earnings tomorrow morning and it may have just caught a break now that Lowe’s Companies Inc. (NYSE: LOW) missed its earnings and has seen its shares drop from the report.  Today’s weak stock market is not helping matters either.

Lowe’s said that its profit fell about 19% to $759 million, or $0.51 EPS, while revenue fell 5% from last year to $13.84 billion.  We had Thomson Reuters showing a $0.54 EPS and $14.35 billion as consensus expectations.

For Home Depot, we would caution that the estimates will have changed now or at least have unofficially changed.  The consensus estimates from Thomson Reuters have estimates set at $0.59 EPS on $19.23 billion in revenues.  But for the same percentage of a earnings and revenue miss, Home Depot could post $0.55 EPS and about $18.5 to $18.6 billion in revenues.

Options trading is active in Home Depot shares today.  In the closest strike prices for the AUG-2009 CALLS, we have seen over 25,000 contracts trade hands.  If we had to assign a snapshot expectation for a price change, we’d estimate an expected move of up to $0.85 from the options traders.  That figure already reflects the near-$1.00 drop we have seen today.

The crew of analysts from Wall Street are mixed on Home depot.  We have an average price target between $28 and $29 for the stock, so that puts the prices close to its current level.  The most recent short interest data is from July 31, but that shrunk to 47.45 million from 54.6 million today.

This may or may not matter, but the esteemed Warren Buffett trimmed his stake in Home Depot but did not trim his stake in Lowe’s.

Lastly, is a look over Home Depot’s chart.  Its stock looks like a stock that greatly needed to be pulled back down.  From early July, this ran from $22.50 all the way up to $27.50 before today’s correction.  The 50-day moving average is $24.59 and the 200-day moving average is $23.06.  Home Depot’s 52-week trading range is $17.05 to $30.74.

JON C. OGG
AUGUST 17, 2009