Hedgeye CEO Keith McCullough is adding Home Depot (HD) to the short side of Investing Ideas. Below is a brief note.
You didn't think I gave up on short-selling, did you? I love short selling!
Like OLLI, I have been waiting, patiently, on Home Depot (HD) to pop towards the top-end of my Risk Range. Retail analyst Brian McGough made a stealth SELL call on is back in November - here's an excerpt from his Retail Pro note on why:
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Takeaway: Revs slowing, costs rising, cash flow meh, and bullish narratives morphing. Overloved, undershorted, fully valued, rate of change is weak. Getting Bearish On Depot and Lowe’s. More of the same from HD and LOW this quarter – absolutely blistering comps with no love from the market. This bullish ‘long the Home’ trade is getting razor thin. Nothing but red on my Home Improvement stock screen. With Depot, it put up an impressive 24% comp. Think about that…this is a company with a revenue base of $110bn last year, and it just comped 24%...that’s the equivalent of adding $26bn in net sales on an annualized basis. Not to be outdone, Lowe’s comped 30%, which naturally led to an 8% sell off in the stock as the headline EPS number was $1.98 – two cents shy of the consensus. The only way you put up a that kind of comp and miss is if the Street is simply sitting on sky-high expectations for both comp and flow through. But flow through was a problem for both retailers. |
Sell on green. Life is better that way,
KM