Home Depot Up as Housing Market Strengthens

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Aug 23, 2014

Home Depot (HD, Financial) reported strong second quarter earnings this week as the housing market also showed strengthening signs in August.

Home Depot beat earnings per share estimates by analysts for the second quarter. Analysts’ consensus EPS estimate was $1.45 for the second quarter. Home Depot reported earnings per share of $1.52 from net earnings of $2.05 billion. Revenue for the second quarter was $23.8 billion. Revenue for the quarter was up 5.7% from one-year ago while net earnings increased 14.2%.

During the week, two significant housing reports were also released. The Commerce Department’s Residential Construction report showed housing starts greatly improving in July. Housing starts increased to an annual rate of 1,093,000 seasonally adjusted from an annual rate of 945,000 seasonally adjusted in June. The rate of housing starts in July was 15.7% higher than the previous month and showed a gain of 21.7% from one-year ago.

Existing-home sales reported by the National Association of Realtors were also higher for the month of July. In the NAR’s July 2014 Existing-Home Sales report, existing-home sales increased to an annual rate of 5.15 million seasonally adjusted in July. The rate of existing-home sales increased 2.4% from June.

Improving market conditions led to an increase in forward-looking guidance for Home Depot. In its second quarter earnings comments management increased its sales growth outlook reporting Home Depot expects sales growth for 2014 to be up 4.8% for the year. The company also increased its earnings per share outlook for 2014 to $4.52.

The stock’s strong earnings report paired with the week’s improved housing market indicators helped Home Depot’s stock end the week 8.78% higher at $91.03.

Analysts have an average target price for the stock of $95.42, however its fundamentals show the stock trading slightly above its discounted cash flow value of $87.81. Housing market activity and consumer confidence over the next year will likely be key factors for the stock’s growth.