Is This Home Improvement Giant a Buy Before Earnings?

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Is This Home Improvement Giant a Buy Before Earnings?

The 2024 Q3 earnings season is slowly winding down, with just a small chunk of S&P 500 members yet to reveal their quarterly results. The period has so far been positive, with earnings growth remaining positive on the back of a strong showing from Technology yet again.

Below is a chart illustrating the overall earnings picture on a quarterly basis.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

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Recently, we heard from home improvement giant Home Depot HD, whose results can provide us a nice read-through of what to expect from a close peer, Lowe’s LOW, in its upcoming quarterly release.

Let’s take a closer look at the HD report.

 

Concerning headline figures in the release, HD posted a 4% beat relative to the Zacks Consensus EPS estimate and posted sales 2% ahead of expectations. EPS fell a modest 0.8% year-over-year, whereas sales climbed roughly 6.6% from the year-ago period.

Below is a chart illustrating the company’s sales on a quarterly basis. As we can see, HD’s top line has remained stagnant over recent periods.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

A continued challenging operating environment impacted margins again, explaining the profitability crunch. It’s important to highlight here that the company saw increased demand stemming from recent hurricanes throughout the period, a key development that we’ll likely see in Lowe’s upcoming release as well.

The challenging environment HD has persistently noted in its quarterly releases can be attributed to a high interest-rate landscape, which has significantly affected consumers’ abilities to borrow. Many of the home-improvement projects consumers take on typically require outside financing, and the current reality just hasn’t been attractive.

In addition, housing market activity has slowed quite notably amid the high interest-rate regime, another factor that has negatively affected home improvement demand overall. The Fed’s easing cycle will help provide a big boost for the company overall, though sticky mortgage rates remain a hurdle to be cleared as well.

The company did positively update sales guidance for FY24 following the release, now expecting a decline of 2.5% year-over-year for FY24 compared to a previous range of 3 – 4% previously. Shares had a muted reaction to the release, remaining just below all-time highs.

 

The overall setup for Lowe’s heading into its release is like that of HD, given their obvious similarities. The Zacks Consensus EPS estimate of $2.81 for the upcoming print recently saw a bump higher following the HD results, with the value reflecting an 8% pullback year-over-year.

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