Home Depot stock still appears highly overvalued, and we suggest investors remain on the sidelines.
/s3.amazonaws.com/arc-authors/morningstar/3559e02b-f74d-4a72-a821-b50f61ba05e9.jpg "Home Depot Earnings: Macro Factors Pinch Demand, but Long-Term Outlook Intact (1)")
Jaime M. Katz, CFAand Grace Na
Securities In This Article
Key Morningstar Metrics for Home Depot
- Fair Value Estimate: $263.00
- Morningstar Rating: 2 stars
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Medium
What We Thought of Home Depot’s Earnings
In recent years, macro factors like low housing turnover and elevated interest rates have weighed on Home Depot’s HD results, and the 2024 fiscal first quarter was no exception. Comparable-store sales dropped 2.8% (near our negative 3% prerelease estimate), with comparable transactions declining 1.5% and average tickets declining 1.3%. Pressures were evident in big-ticket comp transactions (purchases over $1,000, down 6.5%), suggesting continued softness in larger discretionary projects.
Nevertheless, we still believe Home Depot is poised to return to growth as it continues investing prudently to enhance diverse facets of its business. We think improvements in in-stock position, return flexibility, and online shopping experience will maintain the firm’s competitive strengths. Importantly, we don’t anticipate a long wait before the company enters positive comp growth territory. We expect growth to return toward the back of the year, as consumer engagement normalizes in discretionary pull-forward categories (resulting in a 1% drop for the full year), which squares with the firm’s reaffirmed outlook.
As we balance the first-quarter results, time value, and reiterated guidance, we don’t plan any material change to our fair value estimate of $263 per share. Home Depot shares still appear highly overvalued, and we suggest investors remain on the sidelines.
Growing pro sales remains the firm’s primary focus. While the timing around the closing of the SRS Distribution acquisition is uncertain, we think Home Depot’s efforts to expand its complex pro approach in 17 different markets (and potentially more) in coming years while investing in capabilities such as on-time delivery to job sites, order management, and a dedicated salesforce should help it expand both consumer wallet and market shares. This underpins our 4% annual average sales growth forecast over the next decade (beyond fiscal 2024).
Home Depot Stock vs. Morningstar Fair Value Estimate
The author or authors do not own shares in any securities mentioned in this article.Find out about Morningstar’s editorial policies.
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About the Authors
About the Authors
Jaime M. Katz, CFA
Senior Equity Analyst
Jaime M. Katz, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She covers home improvement retailers and travel and leisure.
Before joining Morningstar in 2011, Katz was an associate for Credit Agricole Corporate and Investment Bank. She also worked in equity research for William Blair for three years and spent three years in asset management at Mesirow Financial.
Katz holds a bachelor’s degree in economics from the University of Wisconsin and a master’s degree in business administration from the University of Chicago Booth School of Business. She also holds the Chartered Financial Analyst® designation. She ranked first in the leisure goods and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.
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Grace Na
Associate Equity Analyst
Grace Na is an associate equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She conducts a variety of research and related analysis on companies that fall into the consumer defensive and consumer cyclical sectors.
Before joining Morningstar in 2021, Na spent several months interning at a deal advisory group at KPMG Korea and a Chicago-based private equity firm, where she conducted various qualitative research on both public and private markets.
Na holds a bachelor's degree in finance, investment, and banking from the University of Wisconsin–Madison's Wisconsin School of Business.
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