While the rest of the market has been pulled lower by some less-than-stellar reports from Wal-Mart Stores (WMT) and Hewlett-Packard (HPQ), home improvement giant Home Depot (HD) has surged out of the red today following its positive earnings report. The retailer announced that its fiscal first-quarter profit jumped 12% to $812 million, or 50 cents a share, compared to its year-ago profit of $725 million, or 43 cents a share.
Sales for Home Depot dipped 0.2% to $16.8 billion.
Meanwhile, the consensus estimate was for a profit of 49 cents a share on sales of $17.1 billion.
Looking ahead, the retailer boosted its full-year profit forecast to $2.24 a share, versus its original estimate of $2.20 per share. Unfortunately, the outlook is still below the Street estimate of $2.30 per share.
Overall, Home Depot has suffered through reduced demand for seasonal merchandise due to cold and damp weather in the Northeast and Midwest in April. In addition, year-ago comparisons were high due to heavy appliance demand, which was aided by a federal-rebate program.
Looking over the shares of Home Depot, it appears that the security may have some more room to run higher during the near term. Wall Street hasn’t completely jumped on the stock’s bandwagon, leaving ample room for potential upgrades when compared to its competitor Lowe’s Companies’ (LOW) recent warning. According to Zacks, Home Depot has earned 13 Strong Buys, 10 Holds, and 1 Strong Sell. Should any of the analysts shift their rating to the positive end of the spectrum, the equity could attract fresh buying pressure.
Meanwhile, optimists among options players have yet to shift their attention to the June series of options. Peak call open interest in the May series (which expires on Friday, May 20) resides at the 37 strike, with more than 26,700 contracts. On the other hand, peak call open interest in the June series sits at the 38 strike, with only 7,325 contracts. As more of these traders move to the June series during the coming days, it should help to increase buying pressure for the shares as market makers move to hedge their short positions on the stock.
Technically speaking, the shares have stumbled along in a sideways channel since late March between support at the 36.50 level and resistance at the 38 level. However, in today’s trading, the security has broken above resistance at both its 10-day and 20-day moving averages, leaving the stock free to move higher to its next key resistance level in the 39 area. What’s more, the equity is resting on key support from its rising 10-week trendline, which it has not finished a week below since August. A bounce off these various support levels should help to carry the equity through short-term resistance.
A better-than-expected earnings report combined with the stock’s strengthening technical position makes Home Deport a potentially interesting bullish investment. Options traders may want to consider the stock’s August 37 call. By buying both time and an in-the-money position, traders will have some cushion in the event that the stock makes a slow move higher.
