Home improvement sector

Last year, home improvement retailers had a tough time. The SPDR S&P Homebuilders ETF (XHB) had fallen 26.5%. The higher interest rate, a weak housing market, and weakness in the broader equity market led the stock prices of home improvement retailers to fall. The S&P 500 Index also declined 6.2% in 2018.

However, home improvement retailers have started 2019 on a positive note, with XHB returning 17.1% year-to-date as of March 6. The wage inflation, the rise in job growth in January and February, and the Fed toning down its aggressive rate hike stance appear to have increased investors’ confidence, leading to a rise in home improvement retailers’ stock prices.

Can Home Depot and Lowe’s Stock Price Momentum Continue?

Lowe’s Companies

After losing 0.6% of its stock value in 2018, Lowe’s Companies (LOW) has returned 10.8% year-to-date. The company’s stock price was driven by the announcement of a new share repurchase program of $10 billion in December 2018 and investors’ enthusiasm toward management’s 2019 guidance, which indicated an improvement in the company’s operating margin.

Lowe’s posted its fourth-quarter of 2018 earnings on February 27. Although its fourth-quarter results came in below analysts’ expectations, the company’s SSSG (same-store sales growth) gradually improved in the United States. We’ll discuss Lowe’s fourth-quarter SSSG later in this series.

Home Depot

In 2018, Home Depot’s (HD) stock had declined 9.3%. However,  the strengthening of the broader equity market in 2019 drove the company’s stock price, which rose 7.4% year-to-date.

The company posted its fourth-quarter earnings on February 26. Its fourth-quarter results came in below analysts’ expectations. The management team had blamed wet weather for the lower-than-expected fourth-quarter results. Also, management set EPS guidance of $10.03 for 2019, which was lower than analysts’ expectation of $10.26. The lower-than-expected fourth-quarter earnings and weak 2019 EPS guidance led to a fall in Home Depot’s stock price, offsetting some of the gains in 2019.

Series overview

In this series, we’ll discuss how Home Depot and Lowe’s had performed in 2018. We’ll also cover analysts’ expectations and management’s guidance for 2019. At the end of this series, we’ll look at analysts’ recommendations and valuation multiples for both companies.

First, we’ll discuss Home Depot and Lowe’s revenues in 2018 in the next part of this series.

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