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Home Depot among best-positioned retailers during Coronavirus, says analyst

On Friday, Loop Capital analysts led by Laura Champine upgraded shares of Home Depot from hold to buy despite decreasing its price target from $240 to $235, on the belief that it will be less impacted than most retailers through Covid-19, based on the simple fact that its stores are expected to remain open. The firm also expects construction projects to continue despite high unemployment nationwide due it being an essential industry.

Video Transcript

JEN ROGERS: Right now, it is time for Call of the Day. Home Depot raised to buy at Loop Capital. So, Myles, what I found fascinating about this note, it's one of those rare times when they upgrade their rating from hold to buy, but they also decrease their price target in here. The idea, though, is that Home Depot is going to benefit, even though retail is just getting slaughtered, because Home Depot gets to stay open, and that's a huge advantage when you are selling goods.

MYLES UDLAND: Yeah, it's a huge advantage, and I think, you know, Loop posted a few things that-- that could help Home Depot here. You know, the honey-do list, which is basically things you need to do around the house, but haven't done yet, that could get caught up on, as people are indoors more. There's a mention of maybe people buying more patio furniture. It's nice to get some air if you're going to be self-isolating and social distancing for the next few months, maybe through all of the summer. But I think when you-- when you look at a-- a stock like Home Depot, I mean, it's-- it's pretty soundly outperformed the market during the sell-off.

The stock's down 11% so far year-to-date. The S&P 500 is down almost 20% year-to-date. And so I think in this kind of environment, when everything is just getting washed out or-- or any names with any weakness are getting washed out, ultimately as an investor and-- well, as an investor you can do what you want. But I think as we've seen from a lot of analysts, they are telling their clients who are investors that basically you've got to just buy strength here, and you have to rely on the names that got us here.

And if you go back to 2015, right, when the FANGs were first born, there was another group of names in there in 2015 that helped the S&P finish flat for the year. One of those names was Home Depot, and so it does have a place in this rally as a real tent pole stock for how we got from the 2013 new highs to that record 3,300-plus in early 2020. And so I think Home Depot's probably one of these names that helps us get out of this, whenever that is.

ANDY SERWER: I mean, look, you guys, this stock was, you know, almost $250 last month, and it's now at 195. So, you know, if I told you in February you could buy this thing 20% off at a PE of 18, which is still a little pricey, if you ask me, in this environment, but the reasons why, which is what you guys just sort of went through. But, you know, if you liked them then, you like it more now. And this just goes back to just at some point, investors have to be able to take plunges, particularly, as Myles was suggesting, in quality names, because, you know, this is not the bottom, I don't think.

And, you know, if you go out and buy Home Depot at 195, you're going to be mad at Myles, you're going to be mad at Jen, you're going to be mad at Andy because it's going to go down to 175 or 160. But at some point, you know, this is a great company, and it is going to be back and everything's going to be back. But, you know, if you liked it then, you should like it now. That's-- you know, that's what you have to do. And it's very hard, but there it is, right?

JEN ROGERS: No one be mad at us. We probably have enough people mad at us in our [INAUDIBLE]. One other note from here that struck me is that they-- Loops says, "We expect small-- small businesses with less cash flow and balance sheet flexibility to see disruption" and that that may prove permanent and that that would benefit and accelerate Home Depot's share gains. And that just goes back to what we heard from Karen Mills, the former small business administrator. There are small business competitors to giants like Home Depot, and Home Depot might be getting share in this situation because small businesses just don't have the cash on hand to be able to withstand a shock like this.

ANDY SERWER: And [INAUDIBLE] the target is, at 235, is below that 52-week high. So, you know, people are being conservative here as well.

JEN ROGERS: Yep, and they brought that down from 240 bucks.

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