Home Depot's earnings raise hopes for housing

By msnbc.com news services

Home improvement retailer Home Depot’s strong quarterly earnings report Tuesday has some wondering: Is this an indicator of an improving trend in the much-beleaguered U.S. housing market?

Brian Nagel, a retail analyst at Oppenheimer, thinks so.

One of the warmest U.S. winters on record has certainly encouraged homeowners to take up home projects earlier than usual, leading to strong demand for everything from paint to concrete and boosting Home Depot’s results. But behind that factor you also have a strengthening hosing environment, Nagel told CNBC.

“I spend a lot of time looking at the index of builders confidence and the commentary that has come from the home improvement retailers lately -- it all points to a strengthening demand trend here over the last few months,” he said. “I think this has legs and will persist for some time.”

The world's largest home improvement chain also gave a better-than expected profit forecast for the year Tuesday, just days after a report showed U.S. homebuilder sentiment had risen in February to its highest level in more than four years. That report raised hopes that the housing market was stabilizing.

Tuesday's news drove Home Depot shares to their highest level since May 2002.

Credit Suisse analyst Gary Balter said the most important part of Home Depot’s strong quarterly earnings performance and earnings beat were that “they are occurring prior to any sustained housing recovery.”

The company’s earnings power will rise significantly once the housing market and the economy improve, Balter added.

Reuters contributed to this report.

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