Home Depot (Ticker Symbol: HD) reported earnings before the bell on Tuesday. Despite the damp and rainy spring we had across the U.S. in the first quarter of this year, Home Depot still performed relatively well. The home improvement giant reported an earnings per share beat of $2.27 vs. Wall Street analysts expectations of $2.18. Home Depot reported a slight beat on revenue reporting $26.381 billion vs. Wall Street analysts’ expectations of $26.378 billion. Home Depot’s Chief Executive Officer Craig Menear stated, “We were pleased with the underlying performance of the core business despite unfavorable weather in February and significant deflation in lumber prices compared to a year ago.”
In February of this year, Home Depot took some steps to help boost its stock price. The company announced a $15 billion stock repurchase program. Home Depot has plans of completing $5 billion of the stock buybacks by the end of 2019. The company also announced a 32% increase to its quarterly dividend, raising it to $1.36 per share.
Home Depot’s stock, along with the overall market, got hit hard in the first quarter of 2018. The stock sold off over 15% in the first two quarters, eventually finding price support at the 200-day Moving Average which was located just above the $170.00 price level. The stock proceeded to go on a tear, led by a positive earnings and guidance report, rallying over 20%, to trade to an all-time high of $215.43 on September 12th, 2018. 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 purple circles with arrows, 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. In February, Home Depot broke through its downtrend from 2018 and began to trade higher, led by a positive first-quarter dividend increase and stock repurchase announcement. Currently, Home Depot is sitting around 10% away from the all-time high it made last year.
(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 $209.08. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $190.42.
Often, investors look to Home Depot and its competitor Lowe’s as a proxy for confidence in the housing market. If homeowners feel as if the prices of homes will continue to rise, they will spend more on housing renovations. As you can see, Home Depot has been having a great start to the year despite the poor weather conditions at the beginning of the year. Investors should look to Lowe’s earnings report on Wednesday for more news within the sector.