The Home Depot Inc. HD has experienced steady growth in the past year, fueled by its leadership position in the home improvement market, and ongoing investments in technology, digital capabilities, and supply-chain efficiency through its "One Home Depot" plan. Reflecting this momentum, this Atlanta, GA-based home improvement retailer hit a new 52-week high of $421.56 on Oct. 15, 2024. The company’s current price of $406.40 reflects a 3.6% discount from the recently reached 52-week high mark. The stock price also reflects a 48.2% premium from its 52-week low of $274.26.
Home Depot’s stock rally continues to reflect its focus on customer service. Do-it-Yourself support and professional (Pro) contractor services make it a go-to destination for homeowners and industry professionals. With a vast store network, broad product selection and growing online presence, HD effectively meets increasing consumer demand.
The company’s interconnected retail strategy and strong technology infrastructure have consistently boosted web traffic. HD is also advancing investments to build a Pro ecosystem.
Home Depot’s well-managed inventory, high employee engagement, and expanding online sales and home delivery services are expected to continue driving market share growth. The acquisition of SRS Distribution has further strengthened its role in building material distribution, and enhanced its services for professional contractors and tradespeople.
The Home Depot stock has rallied as much as 42.6% in the past year compared with the broader industry’s 47% growth. The Retail-Wholesale sector and the S&P 500 index have risen 39.9% and 38.5%, respectively, in the same period.
Home Depot’s One-Year Stock Price Performance
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Home Depot is trading above its 50 and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in HD’s financial health and prospects.
HD Stock Trades Above 50 & 200-Day Moving Averages
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Can Home Depot’s Strategic Moves Overcome Ongoing Pressures?
HD is witnessing broad-based pressure across the business, driven by softened consumer demand for certain big-ticket, discretionary categories, a trend that started in first-quarter fiscal 2024. This ongoing softness is due to higher interest rates and increased macroeconomic uncertainty, dampening the demand for home improvement projects.
These factors have negatively impacted Home Depot’s sales, comparable sales (comps) and overall profitability. Although a recent rate cut offers long-term growth potential, near-term challenges persist. Consequently, Home Depot's fiscal 2024 outlook remains cautious.
The company forecasts a year-over-year comps decline of 3-4% for fiscal 2024. It expects the 3% decline in comps to reflect the ongoing adverse consumer demand environment witnessed in the first half of fiscal 2024. . While Home Depot does not expect a decline at the lower end, a 4% decrease would signal greater pressure on consumer demand.
Despite these challenges, Home Depot projects year-over-year sales growth of 2.5-3.5% for fiscal 2024, aided by a $2.3-billion contribution from the 53rd week and $6.4 billion from SRS Distribution. The company expects GAAP earnings per share (EPS) to decrease 2-4% year over year, with the adjusted EPS forecast to decline 1-3%. The 53rd week is expected to contribute 30 cents per share for the fiscal year’s EPS.
HD’s Estimates Indicate a Downtrend
The Zacks Consensus Estimate for Home Depot’s fiscal 2024 and 2025 EPS declined 0.1% and 0.6%, respectively, in the last 60 days. The downward revision in earnings estimates indicates a bearish outlook on the stock.
The Zacks Consensus Estimate for Home Depot’s third-quarter fiscal 2024 EPS declined 0.5% in the last 60 days, highlighting the ongoing concerns that the company is expected to encounter in the near term.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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What Does Home Depot’s Premium Valuation Imply?
With the stock steadily ticking up, the company is trading at a forward 12-month P/E multiple of 26.37X, exceeding the industry average of 24.49X and the S&P 500’s 22.27X. At current levels, Home Depot’s stock valuation looks expensive.
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The premium valuation suggests that investors have strong expectations for Home Depot's future performance and growth prospects. However, some may hesitate to purchase the stock at these elevated levels and wait for a more favorable entry point.
The stock also trades at a premium to its peers, including Lowe’s Companies Inc. LOW, Builders FirstSource BLDR and Tecnoglass TGLS, which are trading at forward 12-month P/E multiples of 22.13X, 14.73X and 19.15X, respectively.
How to Approach Investing in HD Stock?
Home Depot demonstrates strong long-term growth potential, backed by its position in the industry, strong execution and robust growth of Pro customers. The U.S. Federal Reserve’s rate cut also positions the company to benefit from lower interest rates, which should increase the demand for home improvement projects. However, near-term challenges related to soft consumer demand for big-ticket items and broader economic pressures suggest caution before making any investment decision.
HD’s premium valuation compared with its peers makes the stock expensive at these levels. Therefore, investors should examine the developments and their investment acumen before getting on board. If you already own the Zacks Rank #3 (Hold) stock, maintaining your position can be beneficial, given its long-term growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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