What happened

Two giant retailers reported third-quarter earnings this morning, and both beat analyst expectations. But investors' reactions differed between the reports from Home Depot (NYSE:HD) and Walmart. While shares of Walmart were retreating Tuesday morning, Home Depot stock jumped to a new all-time high. As of 11:45 a.m. EST, Home Depot shares were up 6%.

So what

The stock's move pushed its market cap to about $413 billion, passing that of Walmart and making it the second-largest retailer by that measure behind Amazon. Investors rewarded Home Depot for beating estimates with diluted net earnings that increased 23.3% over the year-ago period. Revenue also jumped almost 10%, and comparable store sales grew 6.1%, when analysts were expecting just a 2.2% increase. 

facade of Home Depot store view from parking lot.

Image source: Home Depot.

Now what

Home Depot has been pursuing a strategy to increase its business with professional contractors and home builders. To that end, it acquired HD Supply, a supplier of maintenance, repair, and operations products, in an $8 billion deal announced in late 2020. Continued strength in the housing market has helped that strategy pay off.

Today, the monthly survey for homebuilder sentiment rose to 83 on the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). Analysts had expected a confidence rating of 80, helping to explain how Home Depot's contractor business continues to help drive sales and earnings. 

The surge in Home Depot shares today brings its year-to-date gain to about 48%. As long as the economy stays strong, and the boom in housing persists, the company's balance of contractor and do-it-yourself customers should continue to bring solid returns to shareholders. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.