Jefferies Sets High Bar for Surging Home Depot Stock

Jefferies predicts HD will outperform LOW in next week's earnings reports

by Patrick Martin

Published on Nov 15, 2019 at 10:04 AM

The shares of Home Depot Inc (NYSE:HD) are up 0.3% to trade at $237.27 today, after Jefferies raised its price target to $268 from $246. The brokerage firm predicted Home Depot will outperform Lowe's (LOW) in their upcoming earnings reports, due to impressive same-store sales growth and website traffic. Home Depot is scheduled to report third-quarter earnings before the open this Tuesday, Nov. 19, while Lowe's earnings are expected the morning of Wednesday, Nov. 20. 

The new price target sits deep in record-high territory for Home Depot stock. In fact, HD is currently nestled just below its Oct. 21 record high of $238.98, and is cruising toward its fourth straight win. There have been pullbacks during this steady climb higher in recent months, but they have found support at the shares' 40-day moving average. 

For a stock that's up 38% year-to-date, there's plenty of pessimists around. For starters, nine of the 20 brokerages in coverage still rate HD a tepid "hold," and the average 12-month price target of $236.39 is a discount to current levels. In other words, more bull notes could keep the wind at the equity's back.

Plus, Home Depot's Schaeffer's put/call open interest ratio (SOIR) of 1.54 ranks in the 89th annual percentile, meaning short-term traders are more put-heavy than usual toward the stock. This heavy accumulation of puts could help buoy the shares in the near term, as the hedges related to these bets unwind.

Looking at the stock's earnings history, HD has closed higher the day after the company reports in the last two quarters, including a 4.4% jump in August. During the past eight quarters, the stock has averaged a modest post-earnings swing of 1.2%, regardless of direction. This time around, the options market is pricing in a larger-than-average 4.7% move for Tuesday's trading.

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