This Chart Shows Why Home Depot And Lowe's Shareholders Should Be Optimistic About Earnings

Deutsche Bank sees several indicators that Home Depot Inc HD and Lowe’s Companies, Inc. LOW are buys ahead of earnings, but a strong performance by Tractor Supply Company TSCO in Q1 could be the single best indicator of what to expect.

March retail sales data showed 15 percent year-over-year (Y/Y) growth, following February’s strong 16 percent growth. While Easter and Leap Day calendar shifts likely boosted both numbers, Tractor Supply’s Q1 performance indicates that Lowe’s and Home Depot likely had strong demand in Q1 as well.

Deutsche Bank analyst Mike Baker added that Stanley Black & Decker, Inc. SWK and Sherwin-Williams Co SHW also posted positive Q1 results.

Deutsche Bank is calling for EPS of $1.33 from Home Depot and $0.84 for Lowe's on comp growth of 3.9 percent and 4.0 percent, respectively.

“But based on the recent data points, we believe the risk is biased to the upside, especially on the relatively easier compare,” Baker explained.

Related Link: Why Q1 Earnings Season Has Been More Bullish Than It May Seem

The chart below shows just how highly-correlated the comps of Home Depot, Lowe's and Tractor Supply Company have been in the past.

Deutsche Bank maintains Buy ratings on all three stocks.

Home Depot is expected to report Q1 earnings on May 17, and Lowe's will report the following day.

Disclosure: The author holds no position in the stocks mentioned.