By Sam Boughedda
Bernstein analysts said Tuesday that they see real risk heading into the Home Depot (NYSE:HD) fourth quarter earnings release but believe Lowe's Companies (NYSE:LOW) "looks pretty good."
The analysts said that for Home Depot, they see risk on three fronts coming into the print: SSS and EPS for 4Q22 and a potential guide-down vs. FY23 consensus.
"8 weeks into the 4Q22, HD's Traffic is down (16%). Even if traffic improves modestly for the rest of the Q, it could easily be down (14%), in which case we would expect Txns [Traffic and Transactions] to be down (9-10%)," wrote the analysts. "And even if Ticket is up, say, +7%, which is a tick below 2Q and 3Q22, we'd see SSS down (3%), which would be a highly material ~4pt-miss vs. Cons SSS of +0.7%."
They added that along with the SSS miss, the firm also sees a potential EPS miss for Home Depot, "albeit a modest one."
On the other hand, for Lowes, "things are looking better," claim the analysts, with a potential beat on SSS and EPS for 4Q22 and a potential neutral-to-up guide vs. FY23 consensus.
"LOW's traffic is down (3%) 8 weeks into the quarter. If traffic stays down (3%) for the full Q, we would expect Txns to be down (3%) as well. And if Ticket is up, say, +7%, which is just below 3Q22, we'd see SSS up +4%, which would be 3pt beat vs. Cons SSS of +0.8%," explained the analysts. "Along with that SSS beat, we see a modest potential EPS beat."
However, the analysts note that with HD reporting on February 21, more than a week ahead of LOW on March 1, an HD miss and guide down "could be a direct read-across to LOW, causing LOW stock to sell off on the HD print."
"If LOW is then poised to beat and guide up, there could be an interesting additional upside kicker on the LOW print," they concluded.