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Upward Momentum in Home Depot and Lowe’s Stocks?

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Home improvement sector

So far, 2018 has been tough for home improvement retailers. The SPDR S&P Homebuilders ETF (XHB), which tracks US companies involved in the homebuilding industry, has fallen 29% YTD (year-to-date). The higher interest rate and the weak housing market have led to a fall in home improvement retailers’ stock prices. The weakness in the broader equity market with the S&P 500 Index falling 9.6% YTD hasn’t helped the cause either.

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Lowe’s stock price

Lowe’s (LOW) reported its third-quarter earnings on November 20. As of December 21, Lowe’s was trading at $87.64, which represents a fall of 4.1% since the announcement of its third-quarter earnings.

In the third quarter, Lowe’s outperformed analysts’ EPS and revenue expectations but didn’t meet their SSSG (same-store sales growth) estimate. On December 12, Lowe’s management announced a new $10 billion share repurchase program. Lowe’s management provided the guidance for 2019, which indicated an improvement in the company’s operating margin in 2019. The announcement caused the company’s stock price to rise. However, the higher interest rate and weakness in the broader equity market caused the company’s stock price to fall.

Lowe’s stock has declined 5.7% YTD. The company hasn’t met analysts’ SSSG expectations in all the three quarters in 2018, which dragged the company’s stock price.

Home Depot’s stock price

Home Depot (HD) reported its third-quarter earnings on November 13. As of December 21, the company was trading at $160.48, which represents a fall of 10.6% since the announcement of its third-quarter earnings. For the third quarter, which ended on October 28, the company outperformed analysts’ SSSG, revenue, and EPS expectations. After posting better-than-expected third-quarter earnings results, the company raised its revenue and EPS guidance for 2018.

Despite Home Depot’s better-than-expected earnings and higher EPS guidance, the stock fell. Investors remained concerned about slowing US home sales and the higher interest rate. Home Depot stock has fallen 15.3% YTD.

Series overview

In this series, we’ll discuss how Home Depot and Lowe’s performed in the first three quarters of 2018. We’ll also discuss analysts’ expectations for 2018 and 2019. Finally, we’ll discuss analysts’ recommendations and valuation multiples for both of the companies.

First, we’ll discuss Home Depot and Lowe’s revenues in the first three quarters of 2018.

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