Home Depot Holds Gains After Narrow Q2 Misses
Investors are bracing themselves for weak earnings reports from many of the bellwether retail stocks reporting earnings this week. That may explain why investors are mildly bullish on Home Depot (NYSE: HD) after a better-than-feared earnings report.
In afternoon trading, HD stock is up 3.2%. That’s down from the jump it got when the market opened, but it’s bullish that the company continues to hold onto gains as investors digest its second-quarter earnings report.
The report's headline numbers showed narrow misses on the top and bottom lines. Revenue of $45.28 billion was just a tick below the $45.43 billion expected. Earnings per share (EPS) of $4.68 missed analysts’ forecasts by 1 cent.
The Biggest Gain in Nearly 2 Years
Home Depot’s comparable store sales, up 1% in the quarter, seem to be lifting investors' spirits. That was a little less than what analysts were expecting. However, it was not only a significant improvement from the negative 3.3% in the same quarter last year but also the largest gain in that metric in almost two years.
The company pointed out modest strength in its core Do-It-Yourself (DIY) customer, who was undertaking smaller, seasonal home improvement projects. However, the company also pointed to strength in its Pro sales channel. Consumers may not be undertaking large-scale renovations, but continue to take on smaller projects.
Solid Margins and Unchained Guidance
Aside from the headline numbers, investors were also pleased with Home Depot's outlook for the rest of the calendar year. The company reaffirmed its prior guidance and cited strong operating margins as a reason for its optimism.
Regarding the impact of tariffs, management acknowledged that prices will increase on some products, but it won’t be seen in every category. In fact, the company noted that over 50% of its products are sourced domestically and are not subject to tariffs.
Navigating Cyclical Headwinds
Home improvement chains like Home Depot and its primary competitor, Lowe’s Companies Inc. (NYSE: LOW), are considered cyclical stocks. That is, they will outperform the market when the housing market is strong. But in a tight housing market, these companies tend to lag the market.
In 2025, HD and LOW stocks are up 4.9% and 3.3% respectively.
However, on the company’s conference call, Home Depot management said that in talking with its consumers and professionals, “the number one reason for deferring the large project is general economic uncertainty.” That means that considering the bull case for HD stock is about broader investor confidence more than a rate cut or two in the last few months of 2025.
Slow But Steady Could Pay Off for HD Stock
One upside to Home Depot’s market position is that the stock has lacked the volatility of some of the larger tech stocks. For example, HD stock has been in a general uptrend with higher lows from its June lows around $350.
Further support for that comes from the Bollinger Bands, which are showing neither significant contraction nor expansion. However, with the stock now approaching the upper Bollinger Band and an RSI around 65, HD stock may be entering overbought territory.
The MACD shows a positive trend with the MACD line above the signal line recently, though the gap has begun to narrow slightly, hinting at a potential short-term slowdown in upward momentum. That wouldn't be entirely unexpected because HD stock continues to trade at around 26x forward earnings.
That's slightly higher than the sector average and the company's historical average.
Key near-term support is at the middle Bollinger Band around $400 and further at the lower band near $391. Resistance is immediately at the $409-$410 level, which coincides with the upper Bollinger Band.
Overall, HD appears technically strong in the near term, benefiting from sustained bullish momentum. However, traders should watch for potential short-term retracements if it tests the upper Bollinger Band and resistance levels.
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