by Serge Berger | June 26, 2014 6:52 am
S&P 500 company Home Depot (HD) produced some positive comments about its growth outlook on Wednesday in an analyst presentation/investor update at the Oppenheimer 14th Annual Consumer Conference. While HD stock only rose marginally on the day, Home Depot is constructively positioned for a more extended move higher.
The details: Home Depot said it now expects comparable sales to grow 4.6% for fiscal year 2014, operating margins to expand to 12%, and earnings per share to grow close to 18%. Like many retailers, Home Depot blamed the weather for sales in the first quarter, but still plans on opening seven new stores this year.
On the corporate finance side, Home Depot is looking to repurchase $7 billion worth of HD stock and plans on increasing its dividend each year.
All in all, Home Depot’s comments were well received despite the stock’s muted reaction.
Bigger-picture, when looking at HD stock, it’s important to understand that it is fairly well-correlated to housing and related stocks. In other words, if housing stocks were to begin under-performing the broader market in a meaningful way, Home Depot stock likely would find it challenging to rise.
In terms of Home Depot’s stock price through a multiyear lens, for the better part of the past 12 months or so, HD stock has spent time consolidating the sharp rise off the summer 2011 lows.
To put this in perspective, from August 2011 to May 2013, HD stock rose roughly 190% in a straight line. Considering the size of the company, this is a massive move. And after such a move, a stock either corrects (i.e., mean-reverts lower for some time) or settles into a sideways consolidation range.
Home Depot stock did the latter and still remains in this range.
On the daily chart below, note how quickly the dips in HD stock continue to get bought. All the dips since February (marked with green arrows), quickly got scooped up, and each of them is marked with bullish reversal candles. Over the past week, or so HD stock has coiled up against its March diagonal resistance line (black line), and now looks ripe for an eventual push past this line.
Active investors could play the long side of HD on a daily close above $81 for a possible first upside target closer to $84.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
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