Barclays analysts said on Friday they anticipate first-quarter results for Home Depot and Lowe's to come in slightly ahead of consensus, even as the housing market remains weak and consumer sentiment shows uncertainty. The firm described demand as gradually improving and noted that year-over-year comparisons are easing, which together leave consensus estimates looking reasonable while valuations remain attractive.
While Barclays observed that recent movement on interest rates and housing activity has been slower than it expected three months ago and does not expect meaningful change in the near term, the analysts nonetheless see demand as broadly stable to marginally improving. They added that both stocks have lagged recent market moves, creating what they view as a favorable setup.
The firm's company and supplier trackers indicate that trends in the first quarter improved relative to the fourth quarter. Barclays attributed this improvement to a combination of seasonal and timing factors - the shift to spring merchandising, the effect of tax refunds, easier comparisons to prior hurricane-impacted periods and the influence of inflation dynamics - even as underlying housing conditions remained under pressure.
Most of Barclays' tracked data points support comparable-sales growth of about 1% for both Home Depot and Lowe's, which is modestly above consensus expectations near 0.5%. The analysts noted that big-ticket purchasing appeared to moderate sequentially during the quarter. At the same time, commodity-related inflation looked neutral in Barclays' view, and foreign-exchange movements provided a tailwind.
On housing, Barclays described activity as "stuck" and bouncing around the bottom of its range. The firm's mover model, however, suggests that current levels of mover activity are sufficient to underpin slightly positive overall demand growth, with future progress dependent on interest-rate moves.
Barclays also highlighted a consumer-cost consideration: home operating costs as a share of consumer income are at their highest level since the second quarter of 2014. The firm reiterated the observed inverse relationship between that metric and spending on home products.
Given these dynamics, Barclays maintained its overweight ratings on both Home Depot and Lowe's.
Methodology note - Barclays' conclusions are drawn from internal company and supplier tracking data, their mover model, and a review of inflation and foreign-exchange impacts; the firm emphasized that interest rates remain a key determinant of future housing and demand trajectories.