Sector Snap: Home improvement retailers rise

Shares of home improvement retailers rose along with the broader market Friday after an analyst said second-quarter results would likely be in line with expectations, despite the sluggish American economy.

Deutsche Bank analyst Mike Baker said he still expects weak performance from Lowe's Cos. and Home Depot Inc. He maintained his "Hold" rating on the stocks.

"While we do not believe that results will be materially worse than expectations, we need to see our leading indicators showing some early evidence of comp improvements before becoming more constructive," he wrote in a research note published late Thursday.

Atlanta-based Home Depot and Mooresville, N.C.-based Lowe's are scheduled to report earnings later this month.

"Throughout the housing downturn, Home Depot and Lowe's have behaved rationally for the most part, so gross margins have held up reasonably well despite the sales declines," Baker wrote. "However, with suppliers continuing to see higher costs and pushing through the inflation, we believe gross margin declines are likely ahead."

Baker also said he believes the companies will need to lower their 2009 earnings projections.

Home Depot shares climbed $1.18, or 4.8 percent, to $25.66 in morning trading Friday. Lowe's shares rose $1.28, or 6.1 percent, to $22.23.

Builders FirstSource Inc. climbed 15 cents, or 3.1 percent, to $5.04.

Huttig Building Products Inc. rose 17 cents, or 8 percent, to $2.29.

Lumber Liquidators Inc. rose 22 cents to $13.61.