Opinions
Richard Croft
Home Depot
HD-N
COMMENT
Oct 10, 2013
Stock price when the opinion was issued
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Covid saw overspending by consumers, then underspending, now normalizing. Rising interest rates have affected lower-income US households, and that's showing up in HD traffic numbers. In US, over 50% of homes are over 40 years old; long-term secular trend to repair and modernize.
Cheaper than it's been, probably still a good long-term buy. Dominant market position, and ultimately housing will come back. But housing's in a slowdown, US consumer will go through some difficulties from tariff risk and higher mortgage rates. He has nothing in retail/consumer right now.
They just reported revenues a little light and EPS also missed, basically was flat YOY, but the quarter was still good. The misses were partly based on poor weather last quarter (a wet spring). Same-stores sales over the quarter locked flat, but was +3.1% in July after two flat months. Management is confident in its distribution centres and reiterated its full-year forecast. If interest rates fall (looking likely), it will only help the housing and home improvement market. The tariff hit will be minimized because many HD products are made in the US.
Sold a Feb $65 Put and collected $2 in premium. Wants to reinvest the $2 in buying an upside Call with the same Feb expiry. What price would you recommend? With the $65 Put, the caller has taken on an obligation to buy the stock at $65. The stock is above that price, so he won’t have to buy, because no one is going to make him buy it at a price higher than what they can sell it at in the market. To leverage the $2, he would probably buy an $80 Feb Call.