Market commentary: Home Depot and Lowe’s riding the US house market recovery

The European markets closed in negative territory on Wednesday interrupting the positive trend experienced over the past few days, while in US the stock markets did not moved much, with all major indexes closing flat on the day.

The release of the latest US New Homes Inventory data displayed a solid increase confirm that the US house market continues to improve supported by a better labor market and the extended low mortgage rates environment that took routs over the past 2-3 years.

This has been seen by many as another positive piece of the puzzle pointing to a consistent broader economic recovery that is setting US apart from other developed economies such as Europe, Australia and Japan.

The actions of the FED and the recent slump in oil prices have also prompted existing home owners to increase their spending on home improvements taking advantages of the extra money available and hoping to be able to capitalize these investments in the improving house market.

Confirming this views are the most recent results of the two country’s largest home improvement retail chains Home Depot and Lowe’s, which passed analysts’ expectations and delivered great results.

Home Depot reported its last quarter of 2014 on Tuesday 24th February, posting soring sales that rose by 8.3% to $19.2 billion, coming way on top of market’s expectations of 7.9% revenue’s growth. Net income also jumped by almost 36% to $1.38 billion, delivering earnings of $1.00 per share, $0.11 ahead of investors’ best estimations. Shares in the company have gained an additional 3.62% over the last 2 trading days while still trading at all-time high and having appreciated just below 11% since the beginning of the year. The company also announced a sizable 25% dividend increase, bringing the value of its quarterly payments to $0.59 per share, resulting a forward yield of 2.03% at the closing price on 25 February.

Lowe’s Companies Inc. also reported its fourth quarter 2014 yesterday, posting revenues worth $12.5 billion, up 6% year-on-year and better than anticipated. Net earnings jumped 47% to $450 million, delivering an EPS of $0.46 per share, also way ahead of analysts’ expectations.

The stock has not performed as well as its direct competitor Home Depot, but it has still appreciated over 8% since the beginning of the year and a stunning 58% over the last 12 months. The company also pay quarterly dividend of $0.23 per share or a forward yield of 1.24% at yesterday closing, making it slightly less attractive than Home Depot’s yield.

In Europe the spot light was taken by Span’s largest electricity company Iberdrola SA after announcing the acquisition of US based UIL Holdings Corp in a deal valued at around $3 billion through a cash and shares transaction. The deal values UIL’s shares at $52.75 a share piad by $10.50 in cash and the remaining in Iberdrola’s shares, offering a 25% premium over UIL’s last closing price. The takeover will create a competitive entity in the US electricity and gas market that will seek to invest over $6.9 billion in new or upgrade infrastructure projects, while also controlling the second largest wind portfolio in the US.

Iberdrola SA was marginally up in Madrid during early trading this morning, while investors will surely be watching at the performance of UIL Corp’s at the opening of the US market in the afternoon.

This article was issued by Mr. Paolo Zonno Trader/ Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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