Analysts are Positive about Home Depot. Here’s Why

Many large retailers have released their financial results for the first quarter of 2024, and the numbers as well as management’s commentary shed light on the state of the US consumer. Consumers spend about 70% of their income and therefore, shifts in their spending behaviour influence the rate of growth and employment. This is the case, although the results have been somewhat mixed, with signs that consumers are becoming tired of spending.

High interest rates are painful for consumers

The country’s biggest home improvement retailer, Home Depot, said that its sales have decreased for the third quarter in a row due to the increasing rates of mortgages and inflation.

The home improvement retailer is experiencing a drop in sales as customers are delaying significant home projects because of high interest rates. According to Billy Bastek, Executive Vice President of Merchandising at Home Depot, during an earnings call, ‘Big ticket count transactions or those over $1,000 were down 6.5%.”

Home Depot CFO Richard McPhail also observed a trend of consumers re-allocating their budgets and spending more on lifestyle experiences, including leisure trips and concerts. This corresponds with the typical consumer behaviour that is characterised by low spending on products and high spending on services. However, McPhail was hopeful regarding the rest of 2024 noting that Home Depot’s customers are not in a bad shape financially.

“The consumer, and particularly the homeowning consumer who is our customer, is healthy,” he said in the earning calls. “They are at work; they have received income and wealth increases over the past few years; they have buffers and savings; they continue with home improvement.”

What do analysts think about Home Depot?

Zacks research analysts

Zacks Research lowered its Q2 2025 estimates for Home Depot earnings per share on Tuesday, 28^th of May. Zacks Research analyst R. Lohia now forecasts that the home improvement retailer will generate earnings per share of $4.58 for the quarter, down from their previous forecast of $4.60. Analysts’ average estimate for Home Depot’s full-year earnings is $15.31 per share. Zacks Research also estimated Home Depot’s Q3 2025 earnings to be at $3.85 EPS, Q4 2025 earnings at $3. 18 EPS, and Q1 2026 earnings at $3.79. It has also been estimated that earnings for Q2 2026 will come in at $4.91 EPS, Q3 2026 earnings at $4.22 EPS, Q4 2026 earnings at $3.27 EPS, and for the year 2026 $16.19 EPS. Q1 2027 earnings will come in at $4.02 EPS and FY 2027 earnings are expected at $17.32 EPS.

Home Depot last published their earnings results for the fiscal quarter on Tuesday, 14^th of May. The home improvement retailer posted $3.63 EPS for the quarter, exceeding analysts’ expectations of $3.61 by $0.02. Revenue of the company was $36.42 billion. Home Depot’s return on equity stood at 1,056.67% and a net margin of 9. 79%. The revenue of the company for the last quarter was 2 percent less than the revenue of the previous quarter. It was over 3% in the same quarter of last year. For the same period in the previous year, the company delivered $3.82 earnings per share.

A number of research firms have also issued reports on HD. Stifel Nicolaus upgraded its target price on Home Depot from $355.00 to $366.50 and assigned the stock the equivalent of a “hold” recommendation on Friday, 16^th of February. UBS Group cut its price target on Home Depot from $411 to $400.00 and issued a “buy” recommendation on the shares in a research report published on Wednesday, 15^th of May.

Robert W. Baird reiterated an ‘outperform’ rating and a $370 price target on the stock. Analysts at BMO Capital Markets set a $173.00 price target on the shares in a researchnote on Wednesday, 14^th of February 14th. DA Davidson restated a “neutral” on the shares of the company and gave it a price target of $370.00 in a research note published on Monday, 1^st of April. TD Cowen lowered its price target on Home Depot from $440.00 to $420.00 and issued a “buy” recommendation for the company in a research note on Wednesday, 15^th of May.

Nine equity analysts have assigned a hold rating to the stock while nineteen have given it a buy rating and one has given a sell rating. According to MarketBeat, the stock is currently under a moderate buy and the analysts’ average price target is $377.46.

Analysts at other financial companies including HSBC have also lowered their price targets for Home Depot (NYSE: HD) after the company’s recent quarterly report.  

Global independent investment banking advisory firm Evercore’s analyst cut the price target for the stock to $390 from $420. Nevertheless, he kept an outperform rating on the stock and the new target implies a 13% premium to the price.

Why some analysts believe Home Depot stock will go up?

Like with other home-related stocks, the bulls’ argument for Home Depot is that the recent troubles in the housing and home improvement sectors, which are not doing well, are only transient and are due to the fact that interest rates are still relatively high and are expected to come down. Consequently, Home Depot’s earnings will be low in 2024 but rise when recovery sets in.

The first part of the argument is sound. Comparably, Home Depot’s sales growth was negative after Q4 and the rate of decrease in sales slowed down in Q1 when compared to the two previous quarters.

However, the second part of the argument is questionable as it is uncertain whether interest rates will fall, as inflation in the US remains stubbornly high.

Will the house improvement sector recover and Home Depot with it ?

Even though, history tell us that rates may fall and the home improvement sector will revive sooner or later, there is no assurance that this will happen in this case. Currently, there are increased geopolitical tensions and free trade which is essential in increasing efficiency and combating inflation seems to be low on the agenda of many governments.

Thus, the discussions regarding the future direction of interest rates, the state of the housing market, and, consequently, the performance of Home Depot shares will most probably continue. Not even the optimists can afford to relax and investors are recommended to watch the news and events closely.

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