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Improving Housing Lifts Home Depot Q2

Home Depot raised its fiscal 2015 forecasts Tuesday for the second time this year to largely reflect an improving housing market. The company also beat second-quarter sales views.

The No. 1 home-improvement chain now expects full-year earnings per share of $5.31-$5.36, up from an earlier outlook of $5.24-$5.27 and above the $5.27 that analysts had expected before the Q2 report.

Home Depot (HD) also sees sales growing 5.2%-6%, up from a prior view of 4.2%-4.8% growth, while analysts see a 5.8% gain. Comparable-store sales are now seen up 4.1%-4.9% vs. previous guidance for 4%-4.6% growth.

Shares climbed 2.6% to 122.80, hitting a new high, helped by a buyback authorization for an additional $3.9 billion in shares over the rest of the year, for a total of $7 billion for 2015. Rival Lowe's (LOW), which will report Q2 earnings early Wednesday, gained 0.7% Tuesday.

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Shares of homebuilders Lennar (LEN), D.R. Horton (DHI) and Toll Bros. (TOL) also rallied to multiyear highs.

Prices, Households Rebound

Home Depot's more upbeat guidance comes as a fresh batch of housing data point to an increasingly healthier market. Housing starts rose 10.1% vs. a year earlier to an annual rate of 1.21 million units, the Commerce Department said Tuesday, hitting the highest level since October 2007.

Last month, the National Association of Realtors said that sales of existing homes in June reached the fastest pace in eight years, with the median price climbing 6.5% year over year to a record high of $236,400, above the prior peak set in July 2006.

"Home prices continue to appreciate and household formation is slightly ahead of our prior plans," Home Depot CFO Carol Tome said in a conference call.

After adjusting for data-breach expenses and the sale of its HD Supply (HDS) stake, Home Depot's Q2 earnings rose 12.5% to $1.71 per share, in line with consensus. Sales for the quarter ended Aug. 2 rose 4.3% to $24.8 billion, above views for $24.7 billion.

Same-store sales increased 4.2% systemwide and 5.7% at U.S. stores.

"We had a record number of transactions and the highest quarterly ticket going back to 2006," said CEO Craig Menear in the conference call.

Interline Seen Adding Boost

Though outdoor categories were pressured by weather issues in some parts of the U.S., Home Depot saw strength in maintenance and repair items, decorative lines, and professional products such as power tools and siding, among others.

Meanwhile, Home Depot's pending acquisition of Interline Brands for $1.6 billion is expected to close in the third quarter. The deal will expand Home Depot's reach to professionals who repair and maintain multifamily, institutional and hospitality buildings, a change from the company's focus on products for the home.

"Interline Brands can tap into an incremental consumer base that the company hadn't penetrated heavily in the past," said Morningstar analyst Jaime Katz. "It's much more of a commercial business."