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Why Wall Street Thinks Home Depot Can Weather the Amazon-Sears Pact

When the news broke on Thursday morning that Sears Holdings (SHLD) would begin selling its popular Kenmore line of appliances on Amazon.com (AMZN), the stock market cheered, sending Sears’ shares up 20% on hopes that the partnership would yield urgently needed new sales for the faltering department store.

But the news also inflicted a severe beating on the stocks of major bricks-and-mortar retailers that have huge appliance businesses. Best Buy (BY) shares fell 4.1%, erasing about $6 billion from its market capitalization. Lowe’s (LOW) were down 5.6%, while Best Buy (BBY), which also recently took a hit courtesy of Amazon when the online retailer announced a Geek Squad-like service, was down 3.9%. The Home Depot dip was enough to drag down the Dow Jones 30 index.

But Wall Street analysts said the sell-off was overdone and underestimates such retailers’ ability to fend off Amazon and the solidness of their own appliance businesses. Stifel analyst John Baugh said the dip was a buying opportunity.

Analysts at Robert W. Baird said the stock decline at Home Depot and Lowe’s was overdone, arguing that those two chains are far and away leaders in the sector and not been hit by Amazon’s appliances sales thus far. What’s more, Kenmore is not available at Home Depot or Lowe’s. Those two chains command about one-third of the U.S. home appliance market, according to Euromonitor International data.

And Oppenheimer analysts said both retailers had “forth significant efforts to enhance their lineups of appliance products” while JPMorgan Chase said that the halo around Kenmore, a still popular brand, is largely gone.

At RBC Capital Markets, Scot Ciccarelli said the Kenmore had been “heavily damaged over the last several years,” according to the Financial Times. What’s more, he predicted, many would hesitate to buy Kenmore online because the installation would likely be handled by Sears Home Services. According to the analyst, “Sears is an even more damaged brand than Kenmore, which may make consumers hesitant to use the service.”

The consensus appears to be that the deal with Amazon gives Sears a much needed new avenue for sales, but won’t seriously challenge the well established incumbents. As for Best Buy, it has staked a big claim in the smart home market, success that will be hard for Amazon and Sears to replicate.