New information about the data breach at Home Depot (HD) continues to trickle out. But one thing is almost certain: It will hold back Home Depot’s shares. UBS analyst Michael Lasser explains:
REUTERS Obviously, this is a big uncertainty for the stock. About 64% of Home Depot’s transactions are through debit or credit cards. The market is likely to penalize the shares until more is known…
From a practical perspective, the biggest issue concerns what this means for Home Depot’s near-term traffic. In a very low case, if we assume that Home Depot comps are down -1% to flat in 3Q (vs. our current est. of a 5% gain; a big change), it could shave $0.05-$0.10 off our current estimate of $1.12. However, we don’t think the fallout will be that severe. We believe Home Depot was comping in the mid-to-high single digit range through Labor Day and the next two months represent a smaller pro rata share of the quarter. Also, the fact that multiple breaches have occurred at several different retailers probably means that consumers are less likely to put the blame on each subsequent victim. Said another way, there’s a growing chance consumers increasingly accept the idea that fraud is a cost of the digital economy. We have no proof, but suspect that will be the case…For some context, we looked at Target (TGT), Sally Beauty Holdings (SBH), Michaels Companies (MIK), and others who have experienced data breaches. We found that most companies saw a sequential comp improvement in the quarter subsequent to the breach. But, the average stock performance lagged the S&P in the 2 months following the announcement.
Investors appear to be giving Home Depot the benefit of the doubt today. Its shares have gained 1.6% to $90.40 at 2:28 p.m., trumping Lowe’s (LOW) 0.9% rise to $53.40. Target has advanced 1.3% to $61.15, Sally Beauty has risen 0.9% to $28.07 and Michaels is up 0.4% at $17.30.
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