Home Depot (stock ticker HD) posted a 30% decrease in net income for the first quarter of 2007, underscoring the current weakness of the housing market. Revenue at same-store sales fell about 8%, while total revenue fell about 1% year over year.
A quick look at stock fundamentals shows that, at a Price / Earnings ratio of around 14x and a Price / Book of 3x, Home Depot trades at a relative price which is 95% higher than other stocks in the retail home improvement industry. However, it is currently still cheaper than its chief competitor Lowe’s (LOW) which trades at a P/E of almost 16x. Both have showed declines in stock prices over the last year in the 7 - 8% range. As a component of the Dow, HD may weigh on the index as the market opens today.
However, Wal-Mart posted an 8% gain in Q1 profit as a result of double digit growth in international margins (19%) and a strong turnout by Sam’s Club stores (a 20% increase in first quarter earnings). DaimlerChrysler also posted a whopping 152% increase in Q / Q net income (1,972 MM Euros in Q1 07 vs. 781 MM Euros in Q1 06). Both will help offset fears caused by Home Depot’s weak performance. In addition, positive CPI numbers should also boost the market, as overall CPI and core CPI numbers (CPI net of volatile energy and food) were in line with expectations.