A Close Look At Tuesday’s Key Market Events (Update)

A Close Look At Tuesday’s Key Market Events (Update)

$HD, $LOW, $XHB, $ITB, $DIA, $SPY, $IWM

The US housing sector will be in the lights Tuesday with the release of Home Depot’s (NYSE:HD) F-Q-4 earnings results and the Existing Home Sales report for January.

Either one or both may or may not produce some market-moving data.

I. Home Depot F-Q-4 Earnings Report before the open

Note: Home Depot Inc. posted F-Q-4 profit that topped analysts’ estimates, showing consumers are still willing to spend money on their houses.

Profit in the Quarter through 31 January rose to 1.17/share, the Atlanta-based company said Tuesday in a statement. Analysts estimated EPS at 1.10, on average. Sales climbed 9.5% to $21-B, beating analysts’ $20.4-B estimate.

Why it is important

1. Home Depot is a widely-held stock by retail and institutional investors alike
2. It is the 4th highest-priced stock in the price-weighted DJIA, which means it holds out-sized influence in moving that market index
3. Home Depot’s results and commentary provide a basis for gauging business activity in the housing sector, as well as consumer spending activity in general
4. A disappointment from Home Depot could lead to a sharp drop in the stock that would weigh heavily on the DJIA, a Northside surprise and encouraging guidance could drive the stock and market North.

What Home Depot said after its F-Q-3 report in November

1. It expects FY 2015 sales to be up approximately 5.7%
2. It expects FY 2015 comparable store sales to be up approximately 4.9%, up from prior guidance of 4.1% to 4.9%
3. It expects FY 2015 diluted EPS to grow by approximately 14% to $5.36
4. Assumes foreign exchange rates would remain at current levels through Q-4
5. Diluted EPS includes the benefit of HD’s intent to repurchase an additional $2-B of shares in Q-4

What is in play?

HD (NYSE)

Main competitor

1. Lowe’s (LOW)

Suppliers*

1. Scotts Miracle-Gro (SMG)… [HD was 34% of net sales in 2015]
2. Masco (MAS)… [HD was 33% of net sales in 2014]
3. TCP International Holdings (TCP)… [HD was 24.6% of net sales in 2014]
4. Masonite International (DOOR)… [HD was 17% of net sales in 2014]
5. Universal Forest Products (UFPI)… [HD was 17% of net sales in 2014]
6. USG Corporation (USG)… [HD was 16% of net sales in 2015]
7. Fortune Brands Home & Security (FBHS)… [HD was 15% of net sales in 2014]
8. Griffon Corporation (GFF)… [HD was 12% of net sales in 2015]
9. Acuity Brands (AYI)… [HD was 11% of net sales in 2015]
10. Cree (CREE)… [HD was 11% of net sales in 2015]
11. RPM International (RPM)… [HD was 10% of net sales in fiscal 2015]
12. Toro Company (TTC)… [HD was 11% of net sales in 2015]
13. American Woodmark (AMWD)… [HD and LOW together accounted for 45% of net sales in fiscal 2015]

II. Existing Home Sales Report for January at 10:00a EST

Note: January Existing Home Sales: Actual 5.47-M, consensus 5.30-M, Prior 5.45-M revised from 5.46-M

Why it is important

1. Existing home sales account for roughly 90% of all home sales
2. This report provides important market insight on the health of the housing market by way of the information it provides on first-time buyers, inventory levels, median home prices, and regional sales activity
3. Real estate broker sales commissions factor into GDP computations
4. Existing home sales surged 14.7% M-M in December to a seasonally adjusted annual rate of 5.46-M, which was the largest monthly increase ever recorded. The spike was aided greatly by scheduled closings for November that spilled over to December due to the implementation of new regulations that confused things in November.
5. Home sales could decline then simply on some retracement from the outsized rise in December

What is expected

The median estimate of economists polled projects a downturn in existing home sales in January, due in part to low inventory, the adverse effects of a Winter blizzard, and some retracement after the big rise in December

The Numbers:

Tuesday, 23 February                                           Est             Cons              Prior

Existing Home Sales 10:00a EST                   5.25-M          5.30-M         5.46-M

What is in play?

Homebuilding stocks and related ETFs as expectations for new home sales in January, reported on Wednesday, 24 February will feed off the existing home sales report

1. SPDR S&P Homebuilders ETF (XHB)
2. iShares U.S. Home Construction ETF (ITB)

Home improvement retailers

1. Home Depot (HD)
2. Lowe’s (LOW)

Other real estate-related companies

1. Zillow (Z)
2. RE/MAX Holdings (RMAX)
3. Realogy Holdings (RLGY)
4. Fannie Mae (FNMA)
5. Elli Mae (ELLI)

Index ETFs
SPDR S&P 500 ETF (SPY)
Power Shares QQQ Trust (QQQ)
iShares Russell 2000 (IWM)

III. Economic Reports

Tuesday early, this economic reports scheduled to be released to the market: 1) Case-Shiller 20-City Index (Consensus 5.8%).

• December Case-Shiller 20-City Index: Actual 5.74% Y-Y
• February Consumer Confidence: Actual 92.2, consensus 97.3, Prior 98.1

IV. Earnngs Reports

Tuesday early, these companies are scheduled to report earnings to the market: ASTE, WWW, ANGI, HSII, JAKK, AAC, AIXG, CTG, FDP, FELE, ICLR, LXK, STAY, SUI TNC, TREX, SAH, EXLS, MDXG, LECO, CTB, ECL, ANIP, ARIA, CEQP, DNOW, FTR, GLDD, NCLH, ODP, WLK, WLKP, HEP, HL, SNH, VSI, BCRX, DRH, INSY, LAMR, LXP, ICPT, SNI, AER, M, STOR, HD, SJM, NM, CBRL, DAKT, BMO, ISLE, TOL.

Stay tuned…

Paul Ebeling

HeffX-LNT

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