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Dow Jones Loses Ground Ahead of Home Depot Earnings; Disney Expands Verizon Streaming Partnership

By Timothy Green - Aug 17, 2020 at 12:09PM

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Home Depot is expected to report some impressive numbers on Tuesday morning, and Disney is attaching more of its streaming services to Verizon's unlimited plans.

The Dow Jones Industrial Average (^DJI 0.23%) was the lone loser among the major U.S. stock indices by 10:50 a.m. EDT Monday, down roughly 0.1%. In economic news, Federal Housing Administration mortgages had the highest delinquency rate on record in the second quarter. While a federal forbearance program is preventing foreclosures for most, the seeds of a potential crisis are being planted.

Shares of Home Depot (HD 0.82%) headed higher on Monday, one day ahead of an earnings report that's expected to impress investors due to strong demand for home improvement products. Meanwhile, Disney (DIS -1.38%) stock sank with the market as the company expanded a partnership to drive more users to its streaming services.

A Home Depot store.

Image source: Home Depot.

Strong sales expected for Home Depot

This recession is not like previous recessions, at least not so far. Sales for home improvement retailer Home Depot are normally tied to the health of the economy and the housing market. But with Americans staying home during the pandemic, and with trillions of dollars of stimulus spending landing in their pockets, do-it-yourselfers have been freely spending.

Daily foot traffic at Home Depot stores since April is up around 35% compared to the prior-year period, according to data from Unacast Inc., as reported by the Wall Street Journal. Analysts are expecting the company to report impressive comparable sales growth of 10.9% for the second quarter. Home Depot will release its results before the market opens on Tuesday.

Whether this strong demand for home improvement products holds up as the year goes on is an open question. Consumers may be pulling forward home improvement projects that they would have done eventually, depriving Home Depot of sales in future periods. Stimulus has played a role, and it's likely that any new stimulus bill coming out of Congress will be less generous than the CARES Act passed in March. Less stimulus combined with persistently high unemployment could put an end to Home Depot's demand surge.

What Home Depot has to say about its outlook, particularly how sales have evolved since the federal supplemental unemployment benefit ended in July, may be more telling than the company's second-quarter numbers. If this recession eventually starts to look like past recessions, the company will almost certainly take a sales hit.

Home Depot stock was up about 2.2% on Monday morning, one day ahead of its earnings report. The stock trades right around its 52-week high, and it's gained about 30% since the start of the year.

Disney expands Verizon streaming offer

Disney has had no real problem selling consumers on its streaming services. Disney+ comes with a vast catalog of high-quality content, so the service would have been popular even without a global pandemic. And Hulu, Disney's other major entry into the streaming wars, has been steadily gaining subscribers for years.

As of June 27, Disney had just over 100 million streaming subscribers. Disney+, which only launched late last year, had 57.5 million subscribers, while Hulu had racked up 35.5 million subscribers. ESPN+ rounds out Disney's streaming offerings with 8.5 million subscribers.

Disney had previously teamed up with wireless provider Verizon to offer a free year of Disney+ to users of certain Verizon unlimited plans. On Monday the companies expanded this partnership to include Disney's other streaming services. Two of Verizon's unlimited plans now include free access to Disney+, Hulu, and ESPN+, while other plans include six months of Disney+.

With much of Disney's business hit hard by the pandemic, growing the direct-to-consumer business is critical for the company. It may take years for Disney's parks to return to prepandemic levels of performance, and the movie theater industry may never be the same. Streaming is a big part of Disney's future.

Shares of Disney were down around 0.8% on Monday morning. The stock has recovered a big chunk of its pandemic-related losses, but it remains down about 10% year to date.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Home Depot and Walt Disney. The Motley Fool recommends Verizon Communications and recommends the following options: long January 2021 $60 calls on Walt Disney, short October 2020 $125 calls on Walt Disney, long January 2021 $120 calls on Home Depot, and short January 2021 $210 calls on Home Depot. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Walt Disney Company Stock Quote
The Walt Disney Company
$106.63 (-1.38%) $-1.49
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$309.69 (0.82%) $2.52
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,803.47 (0.23%) $76.65

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