Outlook for Home Depot (NYSE:HD), Lowe's (NYSE:LOW)

FBR says their outlook for home improvement in 2011 is "constructive," but volatile housing metrics keep their from recommending Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) outright.

FBR said, "We are constructive on home improvement, with the group building off of trough trends set in 2009. Choppy housing metrics, such as Case-Shiller, mean that investors can stay selective; and this keeps us from recommending outright both stocks. We expect HD to continue to exhibit better business and share price momentum. Initiatives, such as "First Phone" (mobile handhelds), bode well for the continuation of better relative same-store sales trends for HD, in our view. The chain with higher comp momentum in the past has been afforded a premium P/E valuation. HD's current 2% premium NTM P/E, versus LOW's, looks too low, given its premium same-store sales trends, higher inventory turnover, and other superior operating metrics, such as sales and EBIT per square foot. In the short run, we anticipate that last week's winter storm activity in the Northeast will have a neutral impact on group sales trends—worst case, while a modest net benefit is possible, given storm preparation sales. We reiterate our Outperform rating on Home Depot and our Market Perform rating on Lowe's.

"EPS estimates. For 2010, for HD, we estimate EPS of $1.98, versus the Street estimate of $1.98 and guidance of $1.97 GAAP ($1.99 ex. charges). For 2011, we estimate EPS of $2.22; and this approximates the Street consensus of $2.24. This also compares with HD's guidance (including share repurchases) of 11% to 13% EPS growth over $1.97 GAAP for 2010 (implicit $2.13 to $2.23 for 2011E). For 2012, our EPS estimate for HD is $2.47 (up 11% YOY). For LOW, for 2010, we estimate EPS of $1.41, versus the Street at $1.41. We estimate EPS of $1.63 for 2011 (including an extra week's benefit in 2011), versus the Street consensus estimate of $1.64. LOW has not yet provided tangible EPS guidance for 2011E. For 2012, we estimate EPS for LOW of $1.77, which reflects an 11% YOY EPS growth rate, adjusted for the extra week."

They also gave their ratings for hardline retail:

"Outperform-rated stocks: Home Depot, Office Depot (NYSE:ODP), United Stationers (Nasdaq:USTR), and Radio Shack (NYSE:RSH); Underperform-rated stocks: Genuine Parts Company (NYSE:GPC), Tractor Supply (Nasdaq:TSCO), Staples (Nasdaq:SPLS), and Bed Bath & Beyond (Nasdaq:BBBY); Market Perform–rated stocks: Lowe's, Office Max (NYSE:OMX), Best Buy (NYSE:BBY), hhgregg (NYSE:HGG), O’Reilly Automotive (Nasdaq:ORLY), Auto Zone (NYSE:AZO), and Advance Auto Parts (NYSE:AAP)."

Home Depot was trading at $35.44, up $0.38, or 1.10 percent, as of 11:21 AM EST. Lowe's was trading at $25.30, up $0.22, or 0.88 percent.