Markets Got Used to New Heights in Home Repair Stores
We have already covered the on-going rally in the U.S. leading chains of home improvement stores, such as The Home Depot and Lowe's Companies. So, based on the Christmas quarter financial results released in late February 2024, our baseline scenario was waiting for fresh record peaks above $263 per share of Lowe's and a step-by-step recovery of HD's market price from its correction in April to May, so that we expected its slow ascent to $350 again, while keeping in mind upper levels like $400 for the mid-term. The two challenges were properly embraced by the investing crowd and transformed into achieving the targets.
However, stronger than expected quarterly earnings of both rivals in August and technical moves on charts afterwards hinted at more than we could initially supposed. So, it seems that now is still a right time at least to hold both stocks or maybe even add some additional volumes to buy positions, with possible price goals around $295 to $300 for Lowe's and at least $10 to $15 higher than $420 per share of HD. In case of Lowe's, the cumulative effect after the Q2 report allowed its shareholders to enter a higher space for the company's market cap. What is important, the stock is still feeling comfortable around fresh all-time highs for more than two weeks. This is enough time to validate investors' readiness to remain loyal to further purchasing the stock at small retracement within new ranges. Thus, the chances for a serious drawdown of the asset were fading as soon as markets got used to a new height. The same kind of a breakthrough journey for HD is yet to come, but it would hardly miss it.
After September 18, the growth of both consumer staples and consumer discretionary segments was about three times faster than the general climb in the Wall Street indexes, including techs. It is generally believed that launching monetary easing cycles has the most beneficial effect just on this type of business, allowing retail chains to optimize their costs and at the same time freeing up a little more money available on customers' credit cards.
In Q2, Lowe's business profit expansion accelerated further to $4.1 per share vs $3.06 in Q1 and $1.77 in the Christmas quarter. The current numbers are still lower than $4.56 in August 2023 and $4.67 in the same period of 2022, as inflated costs affected the whole sector, with Lowe's being no exception. However, the rate of profit recovery QoQ is so remarkable, the company's own projections for its gross revenue dynamics allow investors to continue marching on the bullish side. Oppenheimer financial advisors now reward Lowe's with an Outperform rating, suggesting possible growth faster than the market, with their target adjusted to $305. Maybe this goal is a little too high, and so we are addicted to somewhat moderated targets an inch below $300 where the Lowe's market value may reach the next saturation plateau.
As to The Home Depot, a decisive assault on historical peaks detected at the very end of 2021 may be related to surpassing consensus forecasts for the next November 12 report. According to Refinitiv, Wall Street pool of analysts agree with a potential income number of only $3.63 per share, on revenue of $39.2 billion. For comparison, in the previous report on August 13, The Home Depot delivered $4.67 per share on record revenue of $43.18 billion. It may be difficult to repeat such an achievement two times in a row, but the indications for the current quarter may not be as lower as the consensus expectations. Again, the outlook before the end of 2024 may be positively influenced by the store chain's own forecasts for the Christmas season, which are usually encouraging. If markets still tend to buy on expectations to sell later on fact checking. And so, the rally has extra time to become even more solid. As a result of this psychological aspect, reaching next peaking levels could be delayed until early months of 2025.
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