Here’s what Wall Street is saying about Home Depot, Lowe’s ahead of earnings

Home improvement retailers Home Depot (HD) and Lowe’s (LOW) are scheduled to report results of their second quarters before the market open on Tuesday, August 13, and Tuesday, August 20, respectively. Home Depot’s conference call is scheduled for 9:00 am EDT on Tuesday and Lowe’s will hold its quarterly call the following Tuesday at 9:00 am EDT. What to watch for:

HOUSING MARKET COMMENTARY: Mortgage rates that averaged 6.92% in June per Freddie Mac, along with elevated rates for construction and development loans, continuing to put a damper on builder sentiment. Builder confidence in the market for newly built single-family homes was 42 in July, down one point from June, according to the National Association of Home Builders/Wells Fargo Housing Market Index released on July 16. This is the lowest reading since December 2023. “While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing,” said NAHB Chairman Carl Harris.

OUTLOOK: In May, Home Depot backed its fiscal 2024 outlook calling for earnings per share up 1% and revenue up 1%, with comparable sales down 1%. Analysts currently expect EPS of $15.22 on revenue of $158.59B. At the time, the company forecast gross margin of about 33.9% and operating margin of approximately 14.1% Lowe’s, in May, also backed its FY24 forecast calling for EPS of $12.00-$12.30, revenue of $84B-$85B, and comparable sales down 2%-3%. Analysts currently expect EPS of $12.17 on revenue of $84.3B. Also in May, Lowe’s said it expected Q2 comp sales to be “in line” with Q2 and said it expected second half SSS to improve.

BofA told investors last week that it expects Home Depot to report a comparable sales decline of 2% excluding SRS, a sequential improvement from -2.8% reported in Q1 given expectations for a delayed Spring and sequential ticket improvement. Weather trends through the quarter, including high precipitation in May and a hot June, could limit seasonal recovery expectations in the quarter, the firm says. BofA says Home Depot is well positioned in a “choppy” macro environment. Meanwhile, Evercore, which added Lowe’s to the firm’s Tactical Underperform List, said it believes Lowe’s management will keep the EPS range of $12- $12.30 intact but will guide the Street to the low-end of the range, as it expects Q2 comps stayed under pressure as the current weaker DIY demand trends continue.

‘WATER HEATING UP’: JPMorgan raised the firm’s price target on Lowe’s to $272 from $268 and on Home Depot to $400 from $377 and keeps an Overweight rating on the shares as part of a Q2 earnings preview. The firm said the “boiling of the frog consumer backdrop” continues, with the “water heating up” and driving increased promotions across retail as the labor market weakens and consumer balance sheets deteriorate, particularly at the low end.

Cleveland Research said in July that homecenter industry checks indicated demand in Q2-to-date “sounds underwhelming,” adding that its work suggested order reductions to control inventory incrementally through Q2, which looks to be a response to softer-than-expected traffic and lower second half outlooks.

TRUIST PT DECREASE: Truist lowered the firm’s price target on Home Depot to $396 from $406 on August 1 and keeps a Buy rating on the shares. Truist continues to expect home improvement activity to eventually reaccelerate, but the timing remains uncertain amid the modest rise in existing home inventory levels given the potential pressure that could eventually exert on housing prices, the analyst told investors in a research note.

SENTIMENT: Check out recent Media Buzz Sentiment for Home Depot and Lowe’s as measured by TipRanks.