Home Depot: Buy on Ramp-up in Home Spending, Says Analyst

RBC Capital Markets analyst Scot Ciccarelli upgraded Home Depot (HD) to Outperform form Sector Perform today, as he thinks that people are people are beginning to spend more on their homes.

Home Depot has beaten Lowe’s (LOW) on same-store sales growth by more than three percentage points for the past three quarters, and that momentum should continue for the near future at least Ciccarelli argues.

“Spending on home-related activities are NOT skyrocketing by any means, but they do appear to have stabilized and are starting to improve slightly � despite the negative macro backdrop. With better basic retail execution (like in stock levels and customer service capabilities), greater usage of technology (like their First Phone, which lets them check customers out right from the aisles) an SGA run rate that is roughly $1 billion less than its peak (7%-8%), along with an aggressive stock buyback program, there is substantial earnings leverage if same store sales performance improves.”

That said, Lowe’s should begin to gain momentum in about a year, Ciccarelli argues.

“Rather than simply making a relative call on HD vs. LOW, we believe investors should now overweight BOTH HD and LOW (we expect better relative performance from HD for 6-9 months, with better relative performance from LOW over the next 12-18 months).”