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The analysts also told investors in their note that the HD sell-off may have created a short-term tactical buying opportunity for Lowe’s Cos. (NYSE:LOW) while they also like Floor & Decor Holdings (NYSE:FND) here.
Assessing HD’s recent earnings release, the analysts said the company reported a really weak 1Q top-line, and they have concerns.
“Comp sales were down (4.5%), a 450-bps miss vs guidance, and a 300bps miss to Cons,” they wrote. “We’re concerned that Mgmt didn’t see the 200+bps headwind from lumber deflation. And we’re also concerned — more so, really — with weaker-than-expected consumer demand. And we found little consolation in better-than-expected profitability in 1Q, as it was a one-time legal settlement that drove a 2c beat vs. Cons.”
“HD stock closed down 2% on the day, and LOW was down 1.2%. But given the magnitude of the miss and the guide-down — a rarity for HD — that feels like a tiny downward reaction. And we can only conclude that investors weren’t at all surprised,” they added.
“The small sell-off may have created a (short-term tactical) buying opportunity for LOW (which reports next Tues) since HD reported Pro was weaker than DIY (though both negative), and LOW is less exposed to Pro than HD.”
