Home Depot Sales Could Be Better Than Originally Thought, New Channel Checks Show

• Shares of Home Depot Inc HD have gained more than 20 percent over the past year on strong sales growth.
• David MacGregor of Longbow Research stated that his channel checks suggest Home Depot will report a 4.9 percent comparable-store sales growth in the third quarter, outpacing the 4.6 percent consensus estimate.
• MacGregor maintained a Buy rating and $130 price target on shares of Home Depot.

David MacGregor of Longbow Research channel checks point to a 4.9 percent comparable store sales growth – a figure that 30 basis points above of the 4.6 percent consensus estimate. The analyst cited his contacts who reported growth in all key categories, with strong Pro demand seen in Kitchen, Tools & Hardware, Building Materials, Plumbing and Electrical.

MacGregor is also expecting Lowe's Companies, Inc. LOW to report a 4.5 percent comparable-store sales growth in the third quarter, which is above the consensus estimate of 4.2 percent. Similarly, the company also benefited from strong Pro demand and an acceleration in home maintenance related sales.

Looking past the third quarter, MacGregor stated that both Home Depot and Lowe's are "well-positioned" to benefit from continued residential remodeling activity and new construction markets. In addition, the companies will also see benefits from continued improvements and investments in their supply chain management.

Home Depot's Growth To Outperform Lowe's

MacGregor pointed out that Home Depot has posted larger comp sales growth gains than Lowe's in every quarter dating back to 2009 – except for the second quarter of this year. The analyst argued that this was an "anomaly" due to a tough year-over-year compare for Home Depot. However, the trend of Home Depot outperforming Lowe's in comp-store sales will resume in the third quarter and continue moving forward.

MacGregor suggested that Home Depot's outperformance relative to Lowe's is due to its "superior" geographic positioning, higher levels of productivity and greater exposure to categories that show a higher growth profile.

Shares of Home Depot remain Buy rated with an unchanged $130 price target, while shares of Lowe's also remain Buy rated with an unchanged $85 price target.