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Don't Buy Home Depot Stock, Analyst Says, Because a Sales Slump Will Linger -- Barrons.com Don't Buy Home Depot Stock, Analyst Says, Because a Sales Slump Will Linger -- Barrons.com Dow Jones By Evie Liu Home Depot has been among the better performing stocks amid the recent market volatility. Shares are down 6.6% year to date, only half the S&P 500's 13% loss. But one analyst thinks the risk to the stock isn't fully priced in and it would be challenging for it to go higher. In a Wednesday note, Gordon Haskett analyst Chuck Grom downgraded Home Depot shares (ticker: HD) to Hold from Accumulate, and cut his target price to $215 from $267. The FactSet consensus target is $226. The stock was trading up 2.3% to $205.14 Wednesday afternoon, in line with the gain for the Dow Jones Industrial Average. While sales at home-improvement retailers were likely strong in the first quarter, continuing last year's trend, Grom is becoming increasingly concerned about the companies' performance in the second and third quarters. "We have a hard time underwriting anywhere near this [first quarter] level of success and, if anything, believe that [comparable sales] will turn negative in April and stay in that range through late summer," he wrote. A Home Depot representative didn't immediately respond to a request for comment. According to Gordon Haskett's weekly survey of 300 households since the Covid-19 pandemic, there has been a sizable uptick in consumer aversion to buying big-ticket items. Nearly half of the respondents last week said they plan to delay home projects, compared with 34.2% about a month ago. Another survey from early April points to a drop of 8 percentage points year-over-year in planned remodeling projects, while the average budget declined to $6,541, from $8,317. The softening housing market is adding a layer of pressure to home-improvement spending. The National Association of Realtors reported Tuesday that sales of previously owned homes, which make up most of the U.S. housing market, dropped 8.5% last month from February. It was the steepest drop in more than four years, the first signal of Covid-19's impact on home sales as prospective buyers remain sidelined because of social-distancing policies and rising financial strains. The government-imposed limits on the number of people allowed in stores -- which differs among locales -- will also have an impact on both foot traffic and customer experience. Think long lines outside Costco Wholesale (COST) stores, Grom said. While some are calling for the reopening of the U.S. economy and the removal of some shelter-in-place mandates, how quickly consumers return remains to be seen. Grom now expects Home Depot's same-store sales to drop 1.5% in the second quarter, a sharp change from his previous projection of 4.5% growth. He also lowered his second-quarter earnings forecast to $2.90 per share from $3.32. For Home Depot stock to see meaningful upside from the current level, it would require a forward multiple of 23 times earnings. That would be much higher than the average of 20 times over the past three years and "seems too aggressive in today's backdrop," Grom wrote. |
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Msg # | Subject | Author | Recs | Date Posted |
326 | Re: Don't Buy Home Depot Stock, Analyst Says, Because a Sales Slump Will Linger -- Barrons.com | PinewoodsBear | 1 | 8/18/2020 11:53:55 AM |