Home Depot Inc (NYSE: HD) shares were dropping again on Wednesday, continuing a sell-off that followed a revenue miss, disappointing same-store sales and a downward revision to guidance.
But several sell-side analysts said underlying trends point to a sales rebound, adding the company should see a benefit from IT upgrades making an argument for staying with the big box DIY retailer.
Home Depot reported a third-quarter revenue miss and guided 2019 sales down for a second time, while also reporting softer comparable store sales, which drove the stock down about 5% after the print.
Wedbush analyst Seth Basham remains Neutral on Home Depot with a $230 price target.
Baird Equity's Peter Benedict kept an Outperform rating on the stock and upped the target price from $230 to $245.
Bank of America's Elizabeth Suzuki reiterated a Neutral stance and $235 price target.
Wells Fargo's Zachary Fadem reiterated an Outperform rating and has a $260 target price.
Several analysts noted Home Depot attributed its miss and guide down to slower-than-expected completion of IT work aimed at improving customer experience. Those improvements, while delayed, are still expected to come through, and when they do, sales improvements should follow, analysts said.
Housing Trends Impact On Home Depot
The question for Home Depot remains the degree to which housing trends and lower interest rates will translate into demand. While housing market trends are mixed, several analysts said they favor Home Depot.
Investors are skeptical after three straight quarters of comp sales misses, but near-term pressures are easing or reversing, said Fadem. "We believe (Tuesday's) share reaction ... likely proves temporary despite shares approaching an all-time high."
Basham and Suzuki both noted strong execution, with EPS doing well despite the sales misses.
"Despite decelerating industry sales, the company is executing at the top of its game, driving market share gains, a trend we expect to persist in the near-term, creating the potential for upside," Basham wrote in a note. "That said, with already lofty valuations and consumer behavior uncertainty in relation to tariffs, we view the risk/reward for HD shares as more balanced, keeping us Neutral."
Other Reactions To Home Depot's Earnings
Benedict said underlying trends support improved comps in the fourth quarter and EPS guidance looks conservative. While the pullback is warranted, "prospects for improved comps (benefits from strategic initiatives, housing tailwinds) and EPS upside in 4Q (implied margin plan feels conservative) argue for sticking with HD."
Suzuki said home improvement spending broadly could get a boost from housing turnover and refinance activity, which have recently begun to pick up, though slower home price appreciation could offset positive trends.
Home Depot's stock was down another 1.3%, trading around $222.80 per share at time of publication.
Photo courtesy of Home Depot.