Wedbush Reaffirms Neutral On Home Depot Following Update On Its Data Security Breach

In a research note released today, Wedbush analyst Seth Basham reaffirmed a Neutral rating on Home Depot (NYSE:HD) with a $90 price target, following HD’s update on its data security breach. 

Basham wrote, “HD provided a favorable update on its data security breach initially detected at the beginning of September. Thus far, the business impact has been minimal, with sales and operating earnings remaining on plan through the month. The company reiterated its full-year sales guidance and raised full-year GAAP EPS guidance by $0.02 due to non- operating items, leading us to maintain our operating EPS estimate of $4.45. As long as costs to remedy the breach are contained within reason and significant sales are not lost, we believe HD’s stock will shrug off this unfortunate episode.” Basham added, “With HD sales trends still on plan, we surmise that category sales may be a bit stronger than expected, so sales lost from customers’ deciding not to shop at HD may be offset by stronger category demand—this would prove to be a net positive for LOW and would show up in a much narrower 3Q “comp gap” between HD & LOW than the 2.0%-2.4% in recent quarters, as we show inside. Our unchanged projections already suggest the comp gap narrowing to 1% in 3Q and 4Q, which we believe favors LOW stock outperformance near-term based on historical correlations.”

Basham continued, “While the company continues to execute well and has strong operational momentum, we believe a slowing housing market will pressure results more than expected in 2H14 and eliminate upside. Housing trends have stabilized, but are unlikely to break out again due to affordability constraints and, to a lesser degree, mortgage credit availability. 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 significantly improve the housing market. Recently announced policy changes 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, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Seth Basham has a total average return of 10% and a 91.7% success rate. Basham is ranked #1148 out of 3304 analysts.

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