Housing in Focus with Lowe’s (LOW), Home Depot (HD) Earnings

The homebuilder and home improvement stocks could be volatile this week as earnings and economic data reveal the strength of second-quarter spending.

Home Depot (HD) shares were 2% higher in the premarket after reporting earnings this morning, while Lowe’s (LOW) is scheduled for earnings tomorrow morning. Luxury homebuilder Toll Brothers (TOL) will deliver its results this afternoon.

The NAHB Housing Market Index released Monday showed muted homebuilder sentiment. Meanwhile, Housing Starts came in below estimates at 1.239 million versus 1.345 million (est.), while Housing Permits came in higher at 1.443 million against 1.370 million (est.), according to Econoday. The Pending Home Sales report is due out later today and the MBA Mortgage Report is slated for tomorrow. Meanwhile, Wednesday afternoon’s FOMC Minutes could also be a catalyst for this interest rate-sensitive area of the market.

Here are three things to think about this week.

Sector Drivers: Homebuilder and home improvement companies are significantly intertwined with interest rates. High borrowing costs can stifle consumers’ ability to move, which in turn puts a squeeze on major pre-sale or post-move renovations. Some people also exhibit unusually strong reluctance to move and give up their low mortgage rates from pre-2022, which is when the Federal Reserve aggressively increased rates to counteract inflation after Covid-19 stimulus measures. Other notable factors can include tariffs impacting costs of imported building materials and furnishings, as well as general economic pressure, which can cause consumers to cut back on cosmetic upgrades or attempt more “do-it-yourself” projects rather than hire contractors.

Earnings: Home Depot’s adjusted earnings came in at $4.92 per share against Wall Street expectations of $4.71, with revenue of $47.86 billion vs. estimates of $47.46 billion, according to Zacks. CFO Richard McPhail said higher interest rates and continued inflation continue to keep homeowners from taking on debt for larger renovation projects. Meanwhile, estimates for Lowe’s EPS are $4.22 against $4.33 year-over-year (-2.5%), with revenue projections of $26.14 billion compared to $23.96 billion last year (+9.1%). For Toll Brothers, the consensus outlook calls for EPS is $2.90 against $3.73 last year (-22.3%) and revenue of $2.60 billion vs. $2.95 billion in the same period (-11.8%).

Economic Data: While Monday’s National Association of Home Builders (NAHB) Housing Market Index showed a one-point increase to 35 in August, the report highlighted weaker builder sentiment resulting from economic/geopolitical uncertainty, higher mortgage rates, and rising construction costs. The report said higher gas and diesel prices are driving up material costs and noted this is the 16th straight month that at least 30% of builders report cutting prices to support demand as well as being the 16th straight month where the Index came in below 40. Today’s economic data lineup will include reports about Housing Starts, Building Permits and Pending Home Sales.

For the economic and earnings calendars for today and this week, see: Week Ahead: Retail Earnings, FOMC Minutes, Housing Data in Focus.

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