Home Depot earnings beat, but HD stock falls despite record sales

Update: Home Depot (HD) produced a record set of earnings on Tuesday but the stock failed to gain as inventories rose sharply. Inventories were up over 30% yearly. EPS was $5.05 versus forecasts at $4.93 and revenue reached record levels, $43.8 billion versus forecasts of $43.33 billion. HD stock though was 0.5% lower in Tuesday's premarket after earnings as investors focused on growing inventories.

Home Depot (HD) is set to report earnings before the open on Tuesday in what will be a closely watched barometer for the health of the US economy. Economic indicators by their very nature are lagging. We have recently had some strong employment data and comforting CPI data, but retailers are in direct and real-time contact with consumers, and so earnings and guidance can provide a more accurate assessment of the health of the economy. That is why earnings today from Walmart (WMT) and Home Depot are key.

Home Depot stock news

While recent economic data has fed the bulls in their quest to rally, recent housing market data has not been so rosy. Higher interest rates are slowing housing prices and demand. Home Depot is keenly tied to this sector, and it may be a portent of doom for the home improvement retailer. Home Depot benefitted from the surge in pandemic home improvement projects, and this continued post-pandemic as delayed building projects keep the earnings momentum. We expect this momentum to remain in place for the current quarter but are more pessimistic as to the outlook Home Depot will provide. We expect them to be pessimistic about the future of the housing and home improvement markets and to guide them down for the remainder of the year. 

For the record, Home Depot is expected to post earnings per share (EPS) of $4.93 and revenues of $43.33 billion. 

Home Depot stock forecast

HD stock has rallied 15% over the past two weeks, so in our view there is a slight risk-reward to the downside on this earnings report. There is some nice resistance at $320, which will lead to $340 on a positive earnings report. $340 is slightly more important as we can see once the above volume drops off quite sharply (grey bars). That would open the door for a move to fill those gaps at $370 and $385. On the downside, failure to hold above $320 sets the scene for a move to the gap at $290.

HD daily chart