Here’s what Wall Street is saying about Home Depot, Lowe’s ahead of earnings

Home improvement retailers Home Depot (HD) and Lowe’s (LOW) are scheduled to report results of their second quarters before the market open on Tuesday, August 15, and Tuesday, August 22, respectively. Home Depot’s conference call is scheduled for 9:00 am EDT on Tuesday and Lowe’s will hold its quarterly call next Tuesday at 9:00 am EDT. What to watch for:

HOUSING MARKET COMMENTARY: Low existing inventory that is keeping demand solid for new homes helped to push builder confidence up in July even as the industry continues to grapple with rising mortgage rates, elevated construction costs and limited lot availability. Builder confidence in the market for newly built single-family homes in July posted a one-point gain to 56, according to the National Association of Home Builders/Wells Fargo Housing Market Index released on July 18. “The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said NAHB Chairman Alicia Huey.

OUTLOOK: In May, Home Depot reduced its fiscal 2023 earnings per share view to down 7%-13% from down mid-single digits and lowered its revenue view to down 2%-5% from flat. Same-store sales are now sees down 2%-5%, with the company saying “Given the negative impact to first quarter sales from lumber deflation and weather, further softening of demand relative to our expectations, and continued uncertainty regarding consumer demand, we are updating our guidance to reflect a range of potential outcomes.” Analysts currently expect FY23 EPS of $14.96 on revenue of $152.28B. Meanwhile, Lowe’s also cut its outlook for FY23 EPS to $13.20-$13.60 from $13.60-$14.00 and its revenue view to $87B-$89B from $88B-$89B, with SSS now seen down 2%-4%. Analysts currently expect FY23 EPS of $13.37 on revenue of $88.08B.

Citi expects the home improvement, home furnishings, pet care retail, and consumer electronics groups to report Q2 results largely inline or slightly above Street expectations with no major misses expected.

‘STEEPER SLOWDOWN’: Telsey Advisory downgraded Home Depot and Lowe’s to Market Perform from Outperform with an unchanged price target of $315 and $225, respectively. The firm expects Home Depot and Lowe’s to experience a “slightly steeper slowdown” in the near-term related to weak housing market trends, consumers remaining cautious on big ticket items and projects, and continued normalization from the strong COVID-19 and government stimulus related gains from the past three years.

CONSUMERS CUTTING BACK: Argus lowered the firm’s price target on Home Depot to $350 from $400 and keeps a Buy rating on the shares. The analyst cited expectations for reduced sales, noting that while the firm remains bullish on the company’s prospects, it is also concerned that consumers are cutting back on home improvement spending after more than two years of aggressive repair and remodeling activity. Tighter monetary policy and a jump in mortgage rates will likely hurt the economy and the housing market rather than guiding the rate of growth to a sustainable level, the firm tells investors in a research note.

Meanwhile, the firm raised its price target on Lowe’s to $260 from $250 and keeps a Buy rating on the shares. The company’s CEO Marvin Ellison is demonstrating the experience and ability to improve operations and raise profitability as it has elevated its business analytics, upgraded its website, and sold the Canadian business to drive better margin performance and higher capital efficiency.

SENTIMENT: Check out recent Media Buzz Sentiment for Home Depot and Lowe’s as measured by TipRanks.