Michael Kramer is a member and investment adviser representative with Mott Capital Management. I have no business relationship with any company whose stock is mentioned in this article.Ĭharts used with the permission of Bloomberg Finance L.P.This report contains independent commentary to be used for informational and educational purposes only. I am not receiving compensation for it (other than from Seeking Alpha). I wrote this article myself, and it expresses my own opinions. Additionally, the RSI remains in a very steep downtrend.Īnalyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. To this point, it has failed to push above the $285 region on three attempts. Since this story was written on July 5, the stock has hovered around resistance in the $285 region. Given the sharp run higher in the stock starting in March 2021, Home Depot doesn't have much support until that $245 area on the technical chart.Īdditionally, the relative strength index is in a pronounced downtrend, suggesting a great deal of bearish momentum in the stock over the near term. The equity recently fell below support at $285, and that price point has become a level of resistance. That would take the stock back to its pre-pandemic highs. Technicals Point To Lower Pricesįrom a technical standpoint, a decline below $210 doesn't seem likely, but a drop to around $245 does seem possible. This bearish bet appears to be a cheap way for someone to get short the equity, with a minimal capital outlay. The odds of the stock falling that sharply over the next month and a half seem really low. It is also a big wager with nearly $3 million premiums paid. That would be a massive decline in Home Depot stock from its current price of about $277 on July 5. The data shows that the put contracts were bought on the ASK for $1.34, implying Home Depot is trading at or below $208.66 by the expiration date. On July 5, the open interest for the August 19, $210 puts, increased by roughly 22,300 contracts. The discrepancy in estimates is leading someone to make a very aggressive and bearish bet on Home Depot. That would suggest that analysts' earnings estimates are too high or that the company will be buying back enough stock in the coming two years to deliver earnings growth that exceeds revenue growth and operating profit growth. What is odd here is that earnings growth is still much higher than operating profit growth. Again, this growth rate is expected to be faster than revenue growth in both years, pointing to operating margin expansion, suggesting that analysts see costs coming down somewhere. Operating profits are forecast to rise by 4.26% in 2023 to $24.02 billion and another 3.54% in 2024 to $24.87 billion. What is strange is that revenue growth is expected to be much slower than earnings growth, which would suggest analysts see margins expanding somewhere, and based on gross margins estimates, it isn't evident to be true. That is roughly flat to where gross margins had been in fiscal 2022 when they were at 33.62%. Meanwhile, analysts see gross margins staying around 33.6% in both 20. That would suggest that revenue in 2023 will grow by 3.73% and 3.17% in 2024. By 2023 analysts see sales reaching $156.79 billion and $161.76 billion in 2024. That is a growth rate of 7.02% in 2023 and 5.79% in 2024.Įven sales estimates for Home Depot continue to rise. Analysts are forecasting earnings for Home Depot to rise to $16.62 per share in 2023 and $17.59 in 2024. Estimate Discrepanciesĭespite a weakening housing market and reported margin volatility, analysts' earnings estimates for Home Depot's fiscal 20 are holding up. On top of that, higher inflation rates have eaten away at some of Home Depot's gross margins and made those margins much more volatile over the past year. Home Depot ( NYSE: HD) shares have plunged in 2022 due to soaring interest rates which have helped to slow the housing market. It has been updated as of the evening of July 10, where italicized along with the technical chart. This story was written on July 5 for subscribers of Reading The Markets.
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