Earnings Preview: Home Depot

NEW YORK — Home Depot Inc., the largest U.S. home improvement retailer, reports its second-quarter earnings on Tuesday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Home-improvement retailers have felt the pinch as consumers cut back on big-ticket remodeling projects amid the recession. But there are signs the U.S. housing market is stabilizing after prices plunged for nearly three years, and that should benefit home-improvement retailers.

Spring and summer sales are expected to be “less bad,” showing consumers spending more on their lawns and gardens than last year. However, the weather was poor for most of the spring and early summer in many parts of the country, which could have dampened sales. Both Atlanta-based Home Depot and its chief rival, Mooresville, N.C.-based Lowe’s, have predicted that their sales in stores open at least one year, known as same-store sales, fell for the quarter.

BY THE NUMBERS: Analysts polled by Thomson Reuters, on average, expect Home Depot to post a profit of 59 cents per share on revenue of $19.21 billion. A year ago, profit totaled 71 cents per share on revenue of $21 billion.

ANALYST TAKE: On Monday, Jefferies & Co. analyst Daniel Binder kept his “buy” rating on Home Depot and said there are signs of improvement in its business and in the housing market. He raised his share price target to $32 from $29.

“Home Depot should see a favorable gross margin performance as it continues to benefit from merchandising initiatives and lower transportation costs,” he wrote.

Stifel Nicolaus and Co. analyst David A. Schick, who rates the company “buy,” also expects results to begin to improve in the home-improvement sector as the housing slump moderates.

“We believe business improved in late second quarter and into third quarter, and early indicators are suggesting flattish late 2009 (same-store sales) are possible,” he wrote in a note to investors.

WHATS AHEAD: Analysts will be looking for any indication of how the company is faring as the housing slump moderates.

STOCK PERFORMANCE: Home Depot shares edged up less than 1 percent during the quarter, which ended Aug. 1. They closed Thursday at $27.68, near the top of their 52-week range of $17.05 to $30.74.