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They May Be Boring, But Home Center Stocks Beat The Market

Jayson Derrick

Home Center stocks like Home Depot Inc (NYSE: HD) and Lowe’s Companies, Inc. (NYSE: LOW) may not be the most “exciting” companies, especially when compared to the fast moving and exciting wearable technology sector. However, the Home Center sector has offered investors outperformance since the United States entered into a recovery following the financial crisis.

Taking a look at the chart below, it is clear that the Home Center sector offered investors an attractive return.

The 10-year chart paints an even more attractive picture for investors with shares of Home Depot and Lowe’s offering a triple-digit percentage return which vastly outperformed the Dow and S&P 500.

Longbow: Bullish On Home Depot, Lowe’s Ahead Of Q2

In a report published Wednesday, Longbow analyst David MacGregor commented on his recent channel checks that indicate above consensus same-store sales comps growth for both Home Depot and Lowe’s.

According to MacGregor, both Home Depot and Lowe’s underwent a “relatively soft” first part of the second quarter due to poor weather, but both companies benefited in June and July from a reacceleration in R&R and home maintenance activity.

“Long-term we believe that the companies are positioning themselves well to benefit from an eventual recovery of residential remodel and new construction markets through store and supply chain investments and increased market share with Pro customers,” MacGregor wrote.

MacGregor is estimating Home Depot will earn $1.71 per share in the second quarter on same-store sales growth of 3.9 percent and a gross margin of 33.4 percent. The analyst is also estimating Lowe’s will earn $1.27 per share on same-store sales growth of 4.4 percent and a gross margin of 34.5 percent.

MacGregor also projected both companies benefited in the second quarter from a high single-digit growth in big ticket items that drove total ticket up 2.5 to 3.0 percent. He also suggested both companies saw a traffic growth of 1.0 to 1.5 percent.

Shares of Home Depot remain Buy rated with an unchanged $130 price target.

Shares of Lowe’s remain Buy rated with an unchanged $85 price target.

Latest Ratings for HD

Date Firm Action From To
May 2015 JP Morgan Maintains Overweight
Apr 2015 Cantor Fitzgerald Initiates Coverage on Hold
Mar 2015 Oppenheimer Maintains Outperform

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