Home Depot's Announcement a Good Move, But Maintaining Cautious Outlook; Reiterate Equal-Weight

5/1 - "We do not believe this is enough to turn the earnings estimate dial, which should continue to be dominated by macro inputs. One could argue a $0.05 per share benefit by 2010 - all else equal...Today’s announcement nets a cash cost of $100m on a total charge of $586m, with an interesting payback implication: The $12m per store in closing costs is a reminder that real estate can be a liability, not just an asset. Fortunately the cash costs work out to a more modest $1.5m a site."

"Investors believing in 2Q stimulus and 2H recovery should continue to favor LOW or HD over the likes of BBY, RSH, SHLD (all Underweights). We believe the decision by HD management to close underperforming stores and tailor 2009/2010 expansion is a good one. The leaders of Home Improvement are actually reducing store growth and capex budgets as things slow, suggesting they are preparing for the worst even if the market hopes for the best. In Consumer Electronics, in comparison, we have store growth accelerating, capex up 30%+ (at BBY)."

"We still recommend Wal-Mart ($58) at 15.5x 2009E rather than HD at 15x. We believe the hockey stick improvement in much of retail’s 2H EPS is too dramatic. For those who think numbers can be made, we’d highlight LOW at 15x 2009E and AAP at 13x."