The Street Reacts To Home Depot's Q3 Beat

Do-it-yourself home improvement retailer Home Depot Inc HD reported third-quarter results Tuesday morning its which came in better than expected while management lifted its full year sales and profit forecast. Here's how some of the Street's analysts reacted to the print.

The Analysts

• Argus Research Company's Chris Graja maintains a Buy rating on Home Depot's stock with an unchanged $220 price target.
• UBS' Michael Lasser maintains at Buy, price target lowered from $225 to $220.
• KeyBanc Capital Markets' Bradley Thomas maintains at Sector Weight, no assigned price target.
• Raymond James' Budd Bugatch maintains at Outperform, unchanged $205 price target.
• Tigress Financial Partners' Ivan Feinseth.

Argus: Earnings Details

Home Depot's Q3 report is highlighted by 36-percent EPS growth from a year ago due to tax reform, a strong 5.4-percent increase in comparable sales that were positive in 18 of 19 regions, better-than-expected operating margins and ongoing share buybacks, Graja said in a note.

Revenue growth of 5.1 percent in the quarter also exceeded the analyst's estimate of 4-percent growth, which is encouraging, as hurricane-related sales of $150 million were half the amount seen in the same quarter a year ago, the analyst said. 

UBS: Sustainable Growth

Home Depot reported a "solid" quarter, although some investors will remain worried about housing concerns and higher interest rates, Lasser said in a note.

The company has multiple drivers to support the business even if the housing market ticks lower, the analyst said. 

They are:

• A 70-to-100-basis point same-store sales gain due to rival store closings.
• Product price inflation that can offset commodity price deflation.
• Incremental tax reform benefits among consumers.

Related Link: Should Investors Buy Home Depot Or Lowe's? This Analyst Has The Answer

KeyBanc: Best Of Breed, But Look Elsewhere

Home Depot reported a better-than-expected earnings report, and management's guidance was lifted by more than the beat in the quarter, Thomas said in a note.

The company's status as a "best-of-breed retailer" in the home improvement category remains unchanged, but Home Depot faces a slowdown in key trends, including home price growth and demographic trends, the analyst said. 

Investors should be selective with home-related stocks and may want to consider Lowe's Companies, Inc. LOW, as recent management changes could translate to higher sales along with better expense and capital discipline, according to KeyBanc. 

Raymond James: Ignore The Noise

Home Depot's stock is down 16 percent over the past two months due to "some noise" in data readouts like housing, Bugatch said in a note.

Yet there is no reason to believe there is notable change in the housing fundamentals that support an "attractive" home improvement environment, the analyst said. 

Tigress: Further Upside

The average American home is more than a half-century old, which implies the need for continued upgrades and repairs, Feinseth said in his daily newsletter.

New trends like media rooms and finished basements implies that further upside exists for Home Depot and its competitor Lowe's, the analyst said. 

Price Action

Home Depot shares were trading higher by nearly 1 percent at $180.66 at the time of publication Wednesday.

Related Link: Credit Suisse Downgrades Home Depot, Lowe's On Reduced Upside Projections