Why Home Depot Stock Is Jumping Today

Key Points

• Home Depot stock is rising despite the company posting a slight earnings miss with its Q2 report this morning.

• Revenue rose 4.8% in the second quarter and was in line with Wall Street's forecast.

• Home Depot announced that it will be raising prices on some items to help offset the impact of tariffs.

• 10 stocks we like better than Home Depot ›

Home Depot (NYSE: HD) stock is rising Tuesday following the company's recent earnings report. The home improvement retailer's share price was up 3.2% as of 12:15 p.m. ET and had been up as much as 5% earlier in the session. Meanwhile, the S&P 500 was down 0.4%, and the Nasdaq Composite had fallen 1.1%.

Home Depot reported its second-quarter results before the market opened this morning and actually delivered earnings that fell short of the market's expectations. Despite the bottom-line miss, management issued commentary and forward guidance that has investors feeling bullish coming out of the report.

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A Q2 earnings miss isn't keeping Home Depot stock down

Home Depot reported non-GAAP (adjusted) earnings per share of $4.68 on sales of $45.28 billion in the second quarter. While sales for the period were in line with Wall Street's expectations, earnings per share fell $0.01 short of the average analyst target. The company's revenue increased 4.8% compared to the prior-year period, with total same-store sales up 1% and same-store sales in the U.S. up 1.8%. While the retailer's profit came in slightly weaker than expected, management's guidance suggested a better outlook on margins than some investors had anticipated.

What's next for Home Depot?

With its Q2 report, Home Depot reiterated its guidance for annual sales growth of roughly 2.8%. The target actually fell short of the average analyst estimate's call for sales growth of roughly 3%, but investors seem to be betting that the retailer is being somewhat conservative with its targeting on the heels of solid growth last quarter.

More importantly, management confirmed that it plans to raise prices on some of its goods in order to offset the margin impacts created by new tariffs. Home Depot's guidance along those lines may be playing a significant role in the pullback for the broader market today, with its stated plans to raise prices potentially affirming fears that higher-than-expected inflation seen by wholesalers and producers will start filtering through to the consumer economy. Management's price-raising plans highlight macroeconomic risk factors facing the broader market, but they also suggest a better outlook for the retailer's margins.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.