Last week’s retail sales report gave us one snapshot of how the consumer is holding up. This week, we’re getting another – and in many ways, an even better one.
When companies in the retail sector report their earnings, they aren’t just reporting numbers… they’re showing us where Americans are actually spending their hard-earned dollars.
Now, if we learned anything from last week’s retail sales report, it’s that consumers are still spending, albeit cautiously. But the way they’re spending – on home improvement, groceries or discretionary items – can tell us far more about the strength (or fragility) of this economy than a line item buried in a government release.
So, in today’s Market 360, let’s review Home Depot Inc.’s (HD) results from this morning. I’ll also review the expectations for the other three companies reporting this week: Lowe’s Companies Inc. (LOW), Target Corp. (TGT) and Walmart Inc. (WMT). Then we’ll talk about whether these companies are right for your portfolio. Let’s get started…
Getting More Done… or Just Getting By?
Home Depotreported earnings of $4.68 per share on revenue of $45.28 billion, up slightly from $4.67 per share and $43.18 billion in the same quarter of last year. Analysts were calling for earnings of $4.72 per share and revenue of $45.41 billion, so Home Depot just missed analysts’ expectations. This is the second straight quarter that the company has missed earnings expectations. Not only that, but it was also the first time it fell short on both earnings and revenue expectations since May 2014.
Despite this, Home Depot reiterated that it expects net sales to grow 2.8% and same-store sales to increase 1% for the fiscal year.
Home Depot president and CEO Ted Decker said:
The momentum that began in the back half of last year continued throughout the first half as customers engaged more broadly in smaller home improvement projects.
Meanwhile, management warned that higher tariff rates for imported goods could impact the company’s prices. But they also noted that these changes “won’t be broad based.”
Shares of Home Depot opened nearly 2% higher today and continued to hold that strength throughout the day. This is great for the company as it has only tacked on a 1.5% gain so far this year before this report.
What To Expect From The Rest…
Let’s briefly review what to expect from the other retailers this week…
Next up will be Lowe’s, which announces tomorrow morning before the stock market opens. The consensus estimate calls for second-quarter earnings of $4.24 per share on $23.96 billion in revenue, which compares to $4.10 per share and $23.59 billion in the same quarter a year ago.
It is also important to note that Lowe’s first-quarter earnings showed a persistent weakness in big-ticket spending, so that will be important to watch in the report tomorrow.
Target will also report before the market opens tomorrow. Second-quarter earnings are forecast to fall 20.6% year-over-year to $2.04 per share, down from $2.57 per share in the same quarter a year ago. Revenue is expected to decrease 2.2% year-over-year to $24.9 billion. Softer spending on discretionary items – things that people want, but don’t need – weighed on sales last quarter. So, we will see if this continues to be an issue in this latest quarter.
Finally, on Thursday, Walmart will drop its latest numbers. The consensus estimate calls for earnings of $0.74 per share on $174.3 billion in revenue, which compares to $0.67 per share and $167.8 billion in the second quarter of 2024. Remember, Walmart was one of the companies to say it would be passing the cost of tariffs to consumers and raising its prices. So, this report will be a look into where that stands.
Earnings Are One Thing… Fundamentals Are Another
Leading up to these earnings, and following Home Depot’s report, you may be tempted to invest in these stocks. But before you do, wouldn’t it be nice to know if they have the fundamentals to justify buying?
Well, that’s where my Stock Grader tool (subscription required) can help. You see, when it comes to picking market-beating stocks on Wall Street, there are a handful of things I look at. From earnings momentum to cash flow and sales growth… I have an 8-point fundamental analysis that tells me, and you, whether a stock is good to buy or if you should sell.
And the Stock Grader tool makes it easy for you to access this data all in one easy-to-understand grade.
So, when it comes to these big retailers, let’s see how they stack up…
As you can see, three of them probably aren’t worth considering right now,
Walmart, with a B-rating, is the only one worth a look.
Home Depot and Lowe’s have C-ratings, making them a hold… in other words, I would not buy them right now, but I wouldn’t sell them just yet either. And finally, Target holds a D-rating making it a sell.
The Bigger Picture for Investors
Now, I have to warn you that this market environment is a bit unusual right now…
We are in the midst of a five-month “melt-up” that is just mind-boggling. Since the April lows, the S&P 500 has soared nearly 30%. And it is not normal.
As my longtime readers know, I usually dread the month of August because it’s when Wall Street’s “A” team goes on vacation. This is when things can get dicey… Trading volume dries up, and stocks become more vulnerable to manipulation by unscrupulous short sellers and hedge funds.
But so far, that hasn’t been the case.
So while consumer activity continues to remain a mixed bag, the foundation is set for what I call “economic nirvana,” which I plan to explain in detail later this week.
And if the Fed cuts key interest rates as expected at its meeting in September, all bets are off – the market could soar even higher.
Because of this, it is important to invest in fundamentally superior stocks that are poised to profit during this strength.
I recognize that it can be hard to separate the winners from the losers, though. That’s why I recommend you consider my Growth Investor service.
My Growth Investor stocks are backed by 22.8% average annual sales growth and 87.6% average annual earnings growth. Not to mention that the average Growth Investor stock has also had its earnings estimates revised 6.5% higher in the past three months, so the analyst community remains very positive on our stocks.
In other words, those who follow my Growth Investor stocks can invest confidently and reap the rewards of a strong market. Backed by my powerful Stock Grader tool, these are the stocks that exhibit tremendous relative strength and typically lead the market higher.
If you’d like to view my Buy List stocks, learn how to join me at Growth Investor today. You’ll also have full access to my Special Market Podcasts, special reports and past Weekly Updates and Monthly Issues.
(Already a Growth Investor subscriber? Click here to log in to the members-only website.)
Sincerely,
Louis Navellier
Editor, Market 360
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
Walmart Inc. (WMT)
