The Home Depot Inc. (Ticker Symbol: HD) reported earnings before the opening bell on Tuesday that had mixed results. The home improvement giant reported a slight earnings per share beat of $2.53 vs. Wall Street analysts’ expectations of $2.52. Home Depot reported a miss on revenue reporting $27.22 billion vs. Wall Street analysts’ expectations of $27.53 billion. Additionally, Home Depot reported global same-store sales growth of 3.6% vs. Wall Street analysts’ expectations of 4.7%.
The largest home improvement retailer in the United States also gave investors updated guidance. The company lowered its sales forecast and is now expecting sales to grow at 1.8%, which is down from its previous estimate of 2.3%. Home Depot also cut its same-store sales forecast and is now expecting 3.5% growth vs. the previous forecast of 4% growth. The company left its earnings outlook unchanged for the year and said the average customer ticket was $66.36, which was up from this same period the year before.
The above image is of Home Depot’s stock over the past two years. The stock sold off over 15% in the first two quarters of 2018, finding price support just above the $170.00 price level, while forming a rounded bottom basing pattern. The stock proceeded to move higher, rallying over 20%, led by positive earnings and guidance reports in the second and third quarters. Unfortunately, it took a negative turn late in the third and fourth quarter of 2018, giving back its entire bull move from the start of the year.
In the fourth quarter of 2018, Home Depot bottomed forming a bullish divergence pattern as indicated on the chart by the yellow lines where the stock makes a lower low in price but the Relative Strength Index makes a higher low. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Home Depot’s case. Home Depot’s stock began to gain some momentum at the start of 2019, breaking through its downtrend from 2018. The stock found dynamic price support multiple times at its 100-day moving average and proceeded to trade to an all-time high of $239.31 on November 18, 2019.
Traders who are bullish on Home Depot should watch for a potential move back above its earnings day high around $233.12 for a possible move higher back into all-time high territory around $239.00
Traders who are bearish on Home Depot should watch the MACD sell signal and its potential crossing of the zero-line, for a move towards the September lows near 220.00.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 16 analysts offering 12-month price targets, the average price target for Home Depot’s stock is $236.13. According to that number, the stock is priced at a premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $238.42.
Investors in the space should look to Home Depot’s next earnings release on February 25th for fresh news within the sector.