Deutsche Bank Cuts Estimates on Home Depot (HD), Lowe's (LOW) Amid 'Weak Economy,' US Drought

July 18, 2012 12:20 PM EDT
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Deutsche Bank's Mike Baker reduced estimates on both Home Depot (NYSE: HD) and Lowe's (NYSE: LOW) Wednesday morning as "a weak economy and, to a lesser extent, the drought in much of the U.S., has likely negatively impacted near term trends."

Baker cut his earnings estimates for each by about 1-3 cents per share over the next two quarters. He sees Home Deport reporting comps growth of 2.5 percent for Q2 and growth of 3 percent for Q3, and expects Lowe's to see comps up 0.7 percent for Q2 and 1.5 percent for Q3.

The Deutsche Bank analyst noted "categories such as tractors, live goods, fertilizers and irrigation products are likely being negatively impacted by the drought. There are some offsets in areas like air conditioning and related products, but the negative is likely greater than the positive." Baker said these outdoor products account for less than 20 percent of Home Depot and Lowe's annual sales, and less than 35 percent of sales during the peak season.

About 60 percent of Home Depot's stores are in the 26 drought states, while about 59 percent of Lowe's stores fill these states, according to Baker.

The analyst maintains a Buy rating and $32 price target on Lowe's, and a Hold rating and $53 target on shares of Home Depot.

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