Home Depot reported a very good quarter, executing well on things it can control, despite what CFO Richard McPhail called “frozen housing conditions.” The Club stock rose modestly in Tuesday’s down market. Revenue for Home Depot’s second quarter advanced 5.7% year over year to $47.86 billion, outpacing the $47.27 billion expected by LSEG. Earnings per share (EPS) increased 5.1% to $4.92, exceeding the LSEG-compiled $4.73 estimate. The July quarter ended Aug. 2. Same-store sales , or comps, increased 1.7% versus the year-ago period, nearly double the 0.9% estimate from FactSet and almost triple first-quarter comps of 0.6%. This is a big deal because Q1 comps matched Lowe’s for the first time in nearly a year. ( Lowe’s reports its quarterly results Wednesday morning.) HD YTD mountain Home Depot YTD Shares of Home Depot are almost back to breakeven in a year marked by soaring bond yields, which have kept mortgage rates high and the housing market stalled, a tough environment for a company that makes money from supplying homebuilding and home renovation materials. While a recent surge in 30-year Treasury yields to highs not seen in nearly two decades will likely cap further near-term upside in Home Depot, the stock has gained more than 17% since hitting a 52-week low of $289 on May 19. We think that low ought to mark the bottom. Factor in a Home Depot price-to-earnings multiple toward the lower end of its three-year range and a solid dividend yield of about 2.75%, we think now is a good time to accumulate shares. We’re upgrading the stock to our buy-equivalent 1 rating and raising our price target to $370 from $360. Bottom line Management is clearly enhancing operations in a number of ways, including an increased focus on Pro customers, as well as faster delivery times for both Pro and Do-It-Yourself customers, through the nationwide rollout of Express Delivery. On the post-earnings call, merchandising boss Billy Bastek said, “Larger discretionary projects remain under pressure during the second quarter. Pro posted positive comps and outperformed DIY.” That, however, underscores the harsh reality that Home Depot’s fate is tied to the housing market. While providing everything from gardening to lighting to appliances to tools and materials needed for general home maintenance, the real drivers for Home Depot are renovations and new home construction. Both constitute large projects, which are mostly funded with loans. The cost of that debt is determined by interest rates, which move directionally with Treasury rates. Renovations tend to lean on home equity lines of credit, or HELCOs, which are tied to shorter-term bond yields, while home buying leans on mortgage rates, which are tied to long-term Treasurys. The rising bond yields reflect concerns about inflation, which is being stoked by rising oil prices due to the uncertainty around the U.S. war with Iran and subsequent bottlenecks in the Strait of Hormuz, a major global oil transport route. While…
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