After A Rainy Q1, Home Depot Analysts Look At Consumer Trends, Chinese Tariffs

Sales at Home Depot Inc HD were dampened by the wet start to the year, but sell-side analysts disagreed Wednesday on whether broader economic issues will affect the big box retailer’s bottom line in the long run. 

The Analysts

UBS analyst Michael Lasser maintained a Buy rating on Home Depot with a $215 price target.

Wedbush analyst Seth Basham remained Neutral on HD, with a $190 target price.

Stifel’s John Baugh maintained a Buy rating and increased the price target from $200 to $210. 

Wells Fargo’s Zachary Fadem reiterated an Outperform rating with a $215 price target. 

The Takeaway 

Home Depot’s first quarter was affected by wet weather that kept people from taking on projects, but also by a tough comparison to last year, when homeowners in Southern states were fixing up hurricane damage.

Lumber price deflation and last year’s longer quarter also put noise in the report.

The big question remains whether consumers are becoming more cautious and will put off home repairs and new home purchases — and whether Chinese tariffs might come into play.

A 'Noisy' Quarter

USB’s Lasser said not to worry.

“HD's 1Q was noisy, but we believe underlying trends were fine,” Lasser said in a Tuesday note. 

Wedbush’s Basham said there may be more than weather at work in Home Depot's sales weakness.

“We also believe the core business is slowing along with the housing market, as this quarter’s comp was the weakest since 2Q12,” the analyst said. “Moreover, big ticket comps slowed for the third straight quarter.”

Basham also noted the Chinese tariff risk.

Earlier in the week, Bank of America Merrill Lynch's Elizabeth Suzuki also suggested there may be broader renovation cycle issues at play.

Stifel’s Baugh said comp growth was inline when removing weather and deflation from the equation, and agreed with HD management on the broader landscape.

“Management is optimistic on the macroeconomic environment and does not see any impact from SALT (state and local tax deduction changes), home price appreciation slowing, or weak housing turnover." 

Wells Fargo’s Fadem said the first-quarter issues don’t detract from the company’s upside.

“We remain constructive as headwinds appear manageable (and many transitory), the underlying environment supports improving results throughout FY19, Q1 cost controls bode well for FY19 margin flexibility, and valuation remains attractive,” the analyst said. 

Price Action

Home Depot shares were down 1.3 percent at $188.91 at the time of publication Wednesday. 

Related Links: 

10 Biggest Price Target Changes For Wednesday

Cramer Talks KB Home Earnings, Implications For Housing Sector

Photo by John Phelan via Wikimedia.