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Home Depot Earnings Smashed Estimates. The Housing Boom Continues.

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Home Depot shares are up more than 20% this year.

David Paul Morris/Bloomberg

Home Depot

is one stay-at-home stock that is still working as the economy awakens from its post-Covid pandemic. First-quarter earnings smashed expectations and Home Depot stock is on the rise.

The big-box retailer earned $3.86 a share from $37.5 billion in sales. Wall Street was looking for $3.06 a share and $34.9 billion in sales. Sales and earnings rose 31% and 86% year over year, respectively. Same store sales in the U.S. rose 30% year over year.

The strong results look good enough for even the most bullish investors. Shares are up about 2% in premarket trading.

S&P 500

and

Dow Jones Industrial Average

futures are up 0.3% and 0.2%, respectively.

Coming into Tuesday trading, Home Depot (ticker: HD) shares were up about 21% this year, better than comparable returns of the market. Shares were weak coming into earnings though, dropping 4.6% over the past week. Investors might have been taking a little money off the table after Home Depot shares closed at a record high on May 10.

That seems unnecessary now. “Fiscal 2021 is off to a strong start,” said CEO
Craig Menear
in the company’s news release. “We continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects.”

Home improvement demand picked up amid Covid-19 lockdowns. Home depot shares rose about 22% in 2020, better than the comparable gain of the S&P. Shares, however, were down in the fourth quarter of 2020 as investors waited to see if the strong home improvement trends would continue into the new year.

They have. And management hosts a conference call at 9 a.m. eastern time to discuss results and the outlook for coming quarters. The company didn’t provide and outlook for upcoming earnings in its news release. Home Depot withdrew financial guidance, like many other companies, back in May 2020 amid pandemic fears.

Home Depot peer

Lowe’s

(LOW) reports earnings Wednesday. Analysts are projecting $2.59 in per share earnings, up more than 100% year over year.

Wall Street prefers Lowe’s shares to Home Depot stock for now. More than 80% of analysts covering Lowe’s stock rate shares Buy. About 68% of analysts covering Home Depot rate shares Buy.

The average Buy-rating ratio for stocks in the S&P is roughly 55%. Both stocks are well regarded on Wall Street.

Valuation might have something to do with the relative ratings. Home Depot is trading at almost 25 times estimated 2021 earnings. Lowe’s trades for about 19 times estimated 2021 earnings.

Corrections & AmplificationsLowe’s reports earnings on Wednesday. An earlier version of this article said it was Thursday.

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