Home Depot Inc. shares have climbed with the approach of spring weather,
as some investors believe the retailer is well positioned to fend off the
competitive threat of online retailers as the peak season for home improvement
begins.
Home Depot shares are up 0.7 percent year to date after being weighed
down earlier this year in part because of the impact of an unusually long and
snowy winter on sales, investors and analysts said. For the first three months
of 2018, its shares fell 6 percent, while the S&P 500 Retailing index
.SPXRT rose 11.3 percent.
Since April 13, Home Depot shares have climbed 10.6 percent, ahead of
the S&P 500 Retailing index, which has risen 8 percent in the same period.
Amazon.com Inc (AMZN.O) stock saw a 12.1-percent advance.
Home Depot, the largest U.S. home improvement chain by sales, will
report its first-quarter results on Tuesday.
Homeowners catching up on home-improvement projects are more likely to
buy supplies in person over perusing products online, some investors believe.
Home Depot also has a strong business among contractors, which has helped it to
outperform rival Lowe’s Companies Inc (LOW.N), whose sales have lagged. It is scheduled to report its
results on May 23.
Shares of Lowe’s have gained just 0.5 percent in the past month.
Several other big-box retailers’ shares have not performed as well. Bed
Bath & Beyond Inc (BBBY.O) stock has declined 1.1 percent over the same period,
after having dived 20 percent on April 12 on the company’s quarterly results.
Target Corp (TGT.N) shares have risen 1.9 percent, while Walmart Inc (WMT.N) shares have fallen 1.7 percent.
“It’s the season where contractors start getting busy,” said Oliver
Pursche, chief market strategist of Bruderman Asset Management in New York,
which owns Home Depot shares. “That bodes well for Home Depot and similar
companies.”
Home-improvement retailers are also subject to concerns that rising U.S.
interest rates could slow the growth of the housing market, said Greg Melich,
an analyst at Moffett Nathanson in New York. That anxiety has particularly hurt
shares of homebuilders such as Lennar Corp (LEN.N) and D.R. Horton Inc (DHI.N).
But the limited supply of houses has pushed up home values and
encouraged homeowners to spend money on renovation projects. Renovation
activity is projected to increase at an above-average 7.2 percent in 2018 over
the previous year, according to the Joint Center for Housing Studies at Harvard
University.
“Homeowners are feeling encouraged by market conditions,” said Abbe
Will, a research associate at the Joint Center for Housing Studies. “They’re
motivated to do bigger projects: the kitchen, the bathroom.”
Home Depot has also made steps to improve its footing against online
competitors such as Amazon. In December, it announced that it would double its
total investment spending over three years. According to the company’s fiscal
year guidance issued in February, its capital expenditures are expected to
total $2.5 billion.
“It has a strategy to compete and win in multi-channel (retail),” Melich
said. “As spring comes, it should be a pretty good investment.”