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

Home Depot reports Tuesday BMO, while Lowe’s reports Wednesday BMO

Home improvement retailers Home Depot (HD) and Lowe’s (LOW) are scheduled to report results of their fourth quarters before the market open on Tuesday, February 21, and Wednesday, February 22, respectively. Home Depot’s conference call is scheduled for 9:00 am EDT on Tuesday and Lowe’s will hold its quarterly call on Wednesday at 9:00 am EDT. What to watch for:

HOUSING MARKET COMMENTARY: Two consecutive solid monthly gains for builder confidence, spurred in part by easing mortgage rates, signal that the housing market may be turning a corner even as builders continue to contend with high construction costs and building material supply chain logjams. Builder confidence in the market for newly built single-family homes in February rose seven points to 42, according to the National Association of Home Builders/Wells Fargo Housing Market Index released on February 15. “With the largest monthly increase for builder sentiment since June 2013, excluding the period immediately after the onset of the pandemic, the HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market,” said NAHB Chairman Alicia Huey,

OUTLOOK: In November, Home Depot backed its earnings per share guidance for fiscal 2022 of up mid-single digits, against consensus expectations at the time of $16.58, as well as its comparable sales growth view of 3%.  Piper’s Sandler’s recent senior loan officer survey data from the Fed shows a decline in home equity line of credit demand in Q4 by homeowners. With fading homeowner interest in HELOC and overall home equity extractions, large ticket home remodel spend should weaken through 2023, the analyst tells investors in a research note. Given Home Depot’s large exposure to Pro spend, the firm lowered 2023 comp and earnings estimates to below consensus.

Meanwhile, in December, Lowe’s also backed its FY22 adjusted EPS view of $13.65-$13.80 and its revenue view of $97B-$98B, against estimates at that time of $13.76 and $97.41B, respectively. The company forecast FY22 SSS flat to down 1% and announced a $15B stock repurchase plan. Baird remains an "opportunistic buyer" of Lowe’s shares after the company’s investor meeting "reinforced the considerable progress already made in CEO Marvin Ellison’s transformation." Macro remains the biggest wildcard entering 2023, but "compelling opportunities" still lie ahead and he thinks the company did a good job framing out the business across a variety of demand environments, said Baird.

‘RESET,’ BUT ‘NOT RECESSION YET’: Barclays said the U.S. Broadlines, Hardlines, & Food Retail space balances a positive structural view of this group post-pandemic along with a relatively stable consumer backdrop against pockets of cyclical risk and strong year-to-date stock moves.  The firm also notes that supply/demand dynamics have supported record margins normalizing, adding that it has greater preference for stocks with "defensive characteristics."

TACTICAL UNDERPERFORM: Evercore ISI initiated a tactical underperform call on Home Depot into Q4 earnings and adding the stock to the firm’s "Tactical Underperform" list. Increased mortgage rates, falling existing home sales, decelerating house prices and web traffic being off to a slower start year-to-date compared to the last two years all lead the firm to believe Home Depot will guide cautiously for 2023.

LOWE’S CATCHING UP TO HOME DEPOT: Lowe’s shares are down 21% from their record highs hit in December 2021 but the stock isn’t as reliant on the housing market as it might seem, Jacob Sonenshine wrote in Barron’s. These days, the business is being driven by company-specific factors, such as its continued growth in the higher-margin and more-stable contractor business, where it’s narrowing the gap with Home Depot, the author noted. The stock, meanwhile, trades at a discount to both its larger rival and the S&P 500 index, offering a compelling entry point for investors willing to bet Lowe’s turnaround can continue, the publication added.

Keywords: earnings, quarterly earnings, earnings report, Q4, home improvement, housing market, DIY