Morgan Stanley Reaffirms Home Depot's Positive Outlook And Potential EBIT Margin Expansion

Morgan Stanley analyst Simeon Gutman reiterated an Overweight rating on the shares of Home Depot Inc HD with a price target of $320.

Home Depot is hosting its 2023 Investor Conference on Tuesday, June 13, 2023.

The analyst expects HD's long-term outlook to include slightly faster EBIT growth than sales growth. This would imply margin expansion, but the analyst doesn't believe this is an explicit goal for the business, rather would be an implied outcome of 

natural growth trajectory.

In the analyst's view, a 15% EBIT margin growth is achievable but does not expect an official endorsement of the goal.

Given the current backdrop and comparable sales outlook (2%-5% decline for the full year), the analyst believes HD will explicitly discuss protecting EBIT margins of at least 14%, the low end of the guided range for '23 (14.0%-14.3%).

Given the degree of macro uncertainty, HD is unlikely to be prescriptive in its discussion of housing drivers, noted the analyst.

The analyst believes Home Depot's quarter-to-date comparable sales are running in-line with the Street view of -3.5%.

The analyst doesn't yet have a

solid understanding of either the magnitude or timing of returns on market delivery investments and expects to hear more detail at the Investor Conference.

The analyst's Home Improvement industry growth forecast indicates an upside for the company's revenues in 2024 and 2025.

Price Action: HD shares are trading higher by 1.1% at $300.61 on the last check Monday.