Home Depot, Lowe’s to Report in Wake of $9.1 Billion Deal

(Bloomberg) -- Home improvement retailers Home Depot Inc. and Lowe’s Cos. report third-quarter results this week and Wall Street is once again predicting blowout sales performances.

The results will follow Home Depot’s announcement Monday that it will acquire building products distributor HD Supply Holdings Inc., a former unit, in a deal valued at almost $9.1 billion. Just last week, Lowe’s denied a report that it was in talks to acquire HD Supply.

Revenue for the period ended Oct. 31 is seen moderating from record levels the two companies saw over the summer, which were driven by do-it-yourself projects during the pandemic. Still, both are seen posting the highest-ever sales for a third quarter, according to data compiled by Bloomberg. Analysts are also targeting another period of double-digit comparable sales growth.

Shares of both companies have outperformed the broader market this year, benefiting from being deemed “essential” businesses amid the Covid-19 pandemic. Stores remained opened and some people stuck at home found time and funds that might have gone to travel and entertainment available for repairs and renovations. Home Depot has gained 28% this year and Lowe’s is up 34%, compared with the 12% gain in the S&P 500 index.

Observations “point to robust demand for home improvement products” last quarter, Telsey Advisory Group analyst Joseph Feldman wrote in previews of the results. Consumers continued to invest in their homes at heightened levels due to higher disposable income as a result of less spending on discretionary categories, the impact of “nesting” from Covid-19 social restrictions and increasing home values and home ownership, he said.

See also: Home Depot Could Maintain Its Momentum Through 2020: BI 3Q Preview

See also: Lowe’s Robust Same-Store Sales May Continue to Grow: BI 3Q Preview

In another sign of industry strength, U.S. retail sales rose in September at the fastest pace in three months, including a 19% adjusted gain in the building materials, garden equipment and supply dealers category.

“The home improvement and gardening craze isn’t over,” wrote Coresight Research’s Deborah Weinswig after the government report. Gordon Haskett analyst Chuck Grom also cited “favorable reads” from companies including Sherwin-Williams Co., Masco Corp., Scott’s Miracle-Gro Co., Tractor Supply Co. and Floor & Decor Holdings Inc., as well as favorable seasonal weather.

Furthermore, the most recent home improvement report from foot-traffic analytics firm Placer.ai shows a resurgence in visits to stores like Home Depot and Lowe’s. After a dip in September, October year-over-year visits grew almost 16% at Home Depot and almost 24% at Lowe’s.

“Visits are again back on the rise heading into what could be an enormous holiday season for these chains,” wrote Ethan Chernofsky, vice president of marketing at Placer.ai.

Just the Numbers

• Home Depot (withdrew year forecast in May):
  • 3Q adjusted EPS estimate $3.05 (range $2.80 to $3.61)
  • 3Q net sales estimate $31.75 billion (range $29.9 billion to $33.78 billion)
  • 3Q total company comparable-store sales estimate +17.4% (Consensus Metrix, average of 22)
  • 3Q U.S. comp. estimate +19.3% (Consensus Metrix, avg of 9)
  • FY EPS estimate $11.61 (range $10.97 to $12.55)
  • FY sales estimate $125.67 billion (range $117.08 billion to $131.29 billion)
• Lowe’s (withdrew year forecast in May):
  • 3Q adjusted EPS estimate $2.00 (range $1.49 to $2.37)
  • 3Q net sales estimate $21.23 billion (range $19.32 billion to $22.60 billion)
  • 3Q total same-store sales estimate +23.4% (Consensus Metrix, 21 estimates)
  • 3Q U.S. same-store sales estimate +23.9% (Consensus Metrix, 9 estimates)
  • FY EPS estimate $8.68 (range $7.95 to $9.36)
  • FY revenue estimate $86.01 billion (range $81.94 billion to $88.97 billion)

Data

• Home Depot:
  • 21 buys, 11 holds, 2 sells; average price target $300
  • Implied 1-day share move following earnings: 3.2%
  • Shares fell after 9 of prior 12 earnings announcements
  • Adjusted EPS beat estimates in 11 of past 12 quarters
• Lowe’s:
  • 23 buys, 7 holds, 1 sell; average price target $183
  • Implied 1-day share move following earnings: 5.6%
  • Shares rose after 7 of prior 12 earnings announcements
  • Adjusted EPS beat estimates in 9 of past 12 quarters

Timing

• Home Depot:
  • Earnings release expected Nov. 17 6am ET
  • Conference call website 9am ET
• Lowes:
  • Earnings release expected Nov. 18 6am ET
  • Conference call website 9am ET

For Bloomberg Consensus estimates used in this story see: HD US Equity BEst

©2020 Bloomberg L.P.