HD stock hits lowest in 5 1/2 years

ATLANTA — Home Depot's stock hit its lowest point in five and a half years during day trading Tuesday after a New York-based analyst for Merrill Lynch downgraded the company's stock to "underperform."

The stock was trading Tuesday as low as $22.52, the lowest price since it closed at $20.53 on Jan. 28, 2003. Home Depot stock regained some ground Tuesday, closing at $23.21 —the lowest since March 13, 2003.

Lowe's stock also took a dive on Tuesday after Merrill Lynch analyst Alan Rifkin told investors that the "unprecedented" U.S. housing market decline is "too much to overcome" for the nation's two largest home improvement retailers.

Home Depot does not comment on stock price.

Merrill Lynch recommended investors sell shares of Atlanta-based Home Depot and Mooresville, N.C.-based Lowe's, saying the housing environment may deteriorate for the rest of the year. Home Depot and Lowe's are rivals in the business of selling lumber and fix-it-yourself supplies. But both companies are suffering as their sales decline due to high inventories of housing and jitters in lending that are making it difficult for consumers to get credit for homes and home improvements.

Rifkin explained that the he only sees more pain in the near future.

"We see the difficult housing environment worsening throughout 2008," he wrote. "Continued pressure on housing prices, contagion from metro to rural markets, record foreclosures, an inventory glut, and rising delinquencies are all negatives. Tighter lending standards and inflationary pressures are also taking a toll. Housing must first stabilize before Home Depot's [and Lowe's] business fundamentals can improve."

Since the beginning of the year, Home Depot stock has lost 12.5 percent of its value. Also, 22.2 million shares changed hands Tuesday, higher than the average of 16.3 million shares. The stock hit a 52-week high on July 12, when it closed at $40.94.

Lowe's stock also took a dive Tuesday, closing at $20.61, after bottoming at $19.95 during day trading. Lowe's trading volume also was above average at 16.3 million.

Rifkin told clients he applauded Home Depot's "efforts to focus on retail, control costs, rationalize stores and invest in existing stores" as well as improve the shopping experience. "However," he wrote, "we believe that macro head-winds of an unprecedented fall in every housing-related metric are too much to overcome. We await evidence of stabilization before becoming more positive."

Merrill Lynch's 12-month price target for the stock is $22 for Home Depot and $20 for Lowe's. Merrill Lynch was reinitiating coverage of Home Depot and Lowe's stock with the reports.

Morgan Keegan and BMO Capital also have rated Home Depot stock as underpeform. Stifel Nicolaus, Banc of America and Edward Jones, by contrast, recommend buying the stock.

Rachel Tobin Ramos writes for The Atlanta Journal-Constitution.