Home Depot rose after the home-improvement retailer posted quarterly earnings that topped analysts' expectations.
Third-quarter adjusted earnings were $3.78 a share, above the $3.65 a share predicted by analysts polled by FactSet.
Sales were $40.2 billion in the quarter, beating expectations of $39.3 billion.
"While macroeconomic uncertainty remains, our third quarter performance exceeded our expectations," said CEO Ted Decker in a statement.
Shares were up 2.5% in premarket trading.
Coming into Tuesday, the stock has risen 18% this year, trailing the benchmark S&P 500 index, which has gained 26%.
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Home Depot releases results Tuesday morning, kicking off earnings season for big-box retailers. Don't count on the company's third-quarter report to boost the home-improvement sector.
Analysts predict Home Depot will report adjusted earnings of $3.65 a share on $39.3 billion in revenue for the quarter ending in October, according to FactSet.
Same-store sales are projected to be 3.1% lower than a year ago, which would mark the eighth straight quarter of declines.
Wall Street doesn't see Home Depot's same-store sales turning positive until the quarter ending July 2025. Those estimates could be pulled forward if the company reports a surprisingly strong figure this quarter, fueled by spending on hurricane recovery efforts and a slight improvement in overall demand. Retail sales for stores selling building materials and garden equipment ticked up 0.2% in September from August, showing modest gains in spending trends.
"Putting it all together, we still think HD will comp negative this quarter, but perhaps less so than last quarter, which would signal a sales beat for the quarter," writes D.A. Davidson analyst Michael Baker. Baker has a Buy rating on the stock.
The problem, some analysts say, is the market has already factored in the gradual uptick. Home Depot stock is up 18% this year.
"The stock has run up over the past few months, and the real question is if the inflection point in housing turnover is baked in," writes Karen Short, an analyst at Melius Research, who also has a Buy rating on shares.
A large part of Wall Street's enthusiasm stems from the idea that the Federal Reserve's move to cut interest rates will benefit the home improvement sector. Consumers often embark on renovation projects before selling a home, or just after buying. But many potential buyers have been put off by high interest rates and housing prices, resulting in fewer home-improvement efforts. Now that rates are falling, those trends could start to reverse, analysts say.
That said, mortgage rates are still hovering above the 6% mark and have increased since the Fed's September meeting when it first cut rates. It's a reminder to investors that a recovery won't happen overnight.
Home improvement companies like Home Depot and competitor Lowe's will also be looking to temper the market's expectations as they report earnings, writes Greg Melich, an analyst at Evercore ISI. He rates the stock a Buy. Lowe's releases third-quarter earnings on November 19.
"We expect both companies to keep 2024 within their guidance, while also looking for ways to remind the market that whatever the slope of recovery is, the acceleration doesn't happen on day one (Feb in their fiscal years)," he added.
This is especially true if the Fed slows the pace of its rate cuts, something Fed chair Jerome Powell implied is a possibility in 2025.
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