Shares of Home Depot (NYSE: HD) surged today as the company edged out estimates in its third-quarter earnings report and reassured investors that the business was performing well under difficult macro conditions.
Additionally, the stock seemed to benefit from a cooler-than-expected inflation report. That makes it less likely that the Federal Reserve will raise interest rates again, which benefits Home Depot.
As a result, the stock finished today’s session up 5.4%.
Image source: Home Depot.
The home improvement retail giant continues to struggle with the broader slowdown in the housing market. Same-store sales were down 3.1%, and revenue fell 3% to $37.71 billion, which was slightly better than the analyst consensus of $37.63 billion.
On the bottom line, earnings per share slipped from $4.24 to $3.81 as it lost leverage from lower sales and took a hit from lower commodity prices in some categories like lumber. However, that result was also better than estimates at $3.77.
CEO Ted Decker said the quarter was in line with the company’s expectations, and it continues to experience “pressure in certain big-ticket discretionary categories,” a sign that homeowners are being more cautious with interest rates up.
For the full year, the company now sees a comparable sales decline of 3% to 4%, compared to a previous range of 2% to 5%. On the bottom line, it called for EPS to decline by 9% to 11%, compared to its earlier range of 7%-13%.
Investors seemed to applaud the results as the company hit its targets, and the October inflation report lifted the broader market and sparked a surge in real estate stocks.
Home Depot is directly exposed to interest rates because higher mortgage rates have cooled off home sales and made it harder to take out a home equity loan. As a result, sales have fallen this year. However, signs are increasing that the Fed could be done raising interest rates, which would be a big step toward a rebound in the housing market and for Home Depot’s business as well.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.
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