Home improvement giant Home Depot (HD) easily beat first-quarter estimates early Tuesday, as renovations and construction continue to boom amid rising costs of raw materials such as lumber and steel. Home Depot stock fell.
Meanwhile, mortgage rates are rising again. And as more people get vaccinated, home-improvement sales could eventually slow down as people spend more on travel and entertainment.
Home Depot Earnings
Estimates: Analysts polled by Zacks Investment Research expected Home Depot earnings per share of $2.98, a 43% jump, as sales rise 22% to $34.5 billion.
Same-store sales were expected to gain 20% overall and 21% at U.S.-based stores, according to Consensus Metrix.
Results: Home Depot earnings soared 86% to $3.86 a share as sales swelled 33% to $37.5 billion. Same-store sales sprinted 31%, with U.S. comps up 29.9%.
“Fiscal 2021 is off to a strong start as we continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects,” said Chairman and CEO Craig Menear in the Home Depot earnings release.
Stock: Shares closed down 1% at 316.75 on the stock market today. Home Depot stock initially rose in the premarket, but gains faded after the Commerce Department reported a larger-than-expected drop in April housing starts amid soaring lumber and other commodity prices.
Home Depot stock popped past a buy point of 328.93 on May 7 from a three-weeks tight pattern, but they’ve since retreated, according to MarketSmith chart analysis. The relative strength line spiked up in early March, but has since taken a breather
Home Depot stock has pulled back to the 10-week line for the first time since a March breakout. An investor can add shares or start a position on the first or second rebound to the 50-day or 10-week line following a breakout.
Rival Lowe’s (LOW), which reports Wednesday, edged down 0.7% Tuesday. Lowe’s stock has found support at the 50-day line, closing Monday below the 10-week average. A solid bounce could also offer a buying opportunity for Lowe’s stock, though buying just before earnings would be highly risky.
Home Depot Stock Rides Housing Market
Soaring demand for products used in building new homes and renovation projects previously lifted Home Depot stock, which hit a record intraday high of 345.69 on May 10. But it has since pulled back sharply as hot housing demand raises costs of key commodities while the rising 10-year Treasury yield boosts mortgage rates again.
Realtor.com’s April U.S. housing data release indicates that homes are selling at historical speed. The typical listing was on the market for 43 days in April, 20 days less than the same time last year.
The median national home price for active listings soared 17.2% over last year and reached an all-time high of $375,000 in April, higher than last month’s growth rate of 15.6%.
Meanwhile, Harvard University’s Joint Center For Housing Studies says spending on home improvements and repairs is expected to remain solid throughout the year and into 2022. Its Leading Indicator of Remodeling Activity shows 4.8% year-over-year growth in renovation spending to $370 billion in the first quarter of 2021.
But as a result, the price of lumber hit an all-time high of $1,686 per thousand board feet this month, surging 406%. Steel prices are hovering near $1,500 a ton, nearly triple the 20-year average.
Follow Adelia Cellini Linecker on Twitter @IBD_Adelia.
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