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Home Depot shares surged, but concerns linger

Home Depot (HD) reported better-than-expected earnings on Tuesday maintaining its beat streak of five years, missing narrowly on the bottom line but beating estimates on earnings.

Though Home Depot’s outlook looked good, its top line lagged a bit and has analysts concerned about the impact of the ongoing trade war with China and the possibility of a looming recession. CFRA analyst Ken Leon told Yahoo Finance’s The First Trade that the effects of the trade war are hard to measure for this particular retailer.

“This is a durable retailer, but it's based on home improvements. Again, July was very strong. Big ticket sales were up,” Leon said. “The question is, are you going to see that in the next six to nine months?”

The company slashed its sales and comparable sales view for the rest of 2019 due to rising concerns about tariffs and rising lumber costs.

Mount Prospect, IL, USA - May 29, 2011: Entrance of The Home Depot home improvement store in Mount Prospect, IL, a suburb of Chicago. Plants and chairs for sale are displayed in front of store.

Leon also noted that slowed growth for Home Depot is likely anyway, due to the retailer having its strongest quarter of the year. But investors did not seem worried with the stock gaining 4.4% on the day.

“Today the stock is reacting well, and it's probably because their results are better than other weaker retailers,” Leon said. “The stock is acting really well, but last week, consumer confidence was down 6.4%.”

Falling interest rates has translated to falling mortgage rates, which has been bullish for the housing market. Credit Suisse analysts, however, recently warned of weakness when it comes to construction activity and home improvement spending which could hurt retailers like Home Depot and Lowe’s, which will report earnings on Wednesday.


Ashley is a Production Assistant for Yahoo Finance. Follow her on Twitter @actuallynelson

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