Wedbush Maintains Neutral On Home Depot Despite “Solid” 2Q14 Results


In a research report released earlier today, Wedbush analyst Seth Basham maintained Neutral rating on Home Depot (NYSE:HD) with a $75 price target, following the company’s disclosure of what Basham calls “solid” second-quarter results.

Basham wrote, “HD reported comps of 5.8% vs. consensus 4.5% and our 4.0%-4.5% range. HD reported EPS of $1.52, 4.8% above consensus of $1.45 and 5.6% above our $1.44. EPS increased 22.6% y/y. HD beat 2Q expectations on the top and bottom lines, driven by a rebound in spring seasonal business, good results in the core and strong SG&A leverage. We believe HD’s solid execution helped drive the results and that the company did not see a material change in trend in big ticket discretionary categories. Due to the housing slowdown, we continue to expect sales trends to moderate in 2H14 below the 4.8% comp level necessary for the company to reach its full-year comp guidance of 4.6%. We see more risk to LOW FY comp guidance than HD.” Basham added, “While the company continues to execute well and has strong operational momentum, we believe a slowing housing market will pressure results more than expected by the back half of 2014 and eliminate upside.”

Basham added, “Affordability the primary issue with housing. We continue to believe that the primary issue with housing demand is affordability— particularly for first-time homebuyers—after unprecedented jumps in home prices in recent years have led home price-to-income ratios back to housing bubble levels as we detailed in our report, Hope Springs Eternal or Will Housing Blossom this Spring?. Without a correction in home prices, we believe it will take better economic growth and/or substantial improvements in mortgage credit availability to prop up the faltering housing market. Recently announced changes to Federal Housing Finance Agency (FHFA) policy are unlikely to significantly ease credit conditions and even though home price growth is decelerating and mortgage rates have pulled back a bit recently, affordability is still not attractive.”

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Seth Basham has a total average return of 10.3% and an 81.8% success rate. Basham is ranked #1157 out of 3250 analysts.

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