Home Depot Had A Mixed Q2 But Some Analysts See Upside In The Stock - Here's Why

Several analysts raised the price target of The Home Depot, Inc. HD following better-than-expected Q2 performance yesterday.

The company reported a second-quarter FY23 sales decline of 2% year-on-year to $42.92 billion, beating the analyst consensus of $42.25 billion and EPS of $4.65, beating the analyst consensus of $4.46.

DA Davidson analyst Michael Baker raised the price target to $320 from $290 and maintained a Neutral rating.

Baker believes that the worst is behind Home Depot with respect to financial trends and believes Q2 results will not change any opinions in the short term on the investment outlook.

The analyst revised the estimate for EPS to $15.18 (from $15.75) vs. consensus of $15.03 in FY23 and $16.04 (from $17.06) vs. consensus of $15.99.

Baker updated the estimate for revenue to $152.6 billion (from $157.4 billion) vs. consensus of $152.7 billion for FY23 and $156.0 billion (from $163.2 billion) vs. $156.3 billion estimate.

Truist Securities analyst Scot Ciccarelli increased the price target to $372 from $348 and reiterated at a Buy rating.

The analyst raised FY23 and FY24 EPS estimates to $15.25 (from $15.00) and $15.75 (from $15.50) and expects FY25 EPS at $16.80, reflecting stabilizing home improvement trends.

The analyst expects the company's gross margin expansion during the Great Recession and believes its ability to turn labor costs can make EPS of $14.50 a relatively strong earnings floor for FY23.

Wedbush analyst Seth Basham upped the price target to $350 from $290 and maintained a Neutral rating.

Basham raised the revenue estimate to $153.9 billion (from $152.02 billion) for FY23 and $158.06 billion (from $155.94 billion) for FY24.

The analyst also increased the EPS estimate to $15.34 (from $14.76) for FY23 and $16.46 (from $15.84) for FY24. 

However, the analyst expects macroeconomic uncertainties to persist in 2024.

On the other hand, Morgan Stanley analyst Simeon Gutman maintained the price target at $320.00 and an Overweight rating.

The analyst noted that the demand remains tepid (but stable), and the "lock-in" effect is unclear, and expects below-average demand in FY24.

Given the stabilizing results, Gutman believes downside earnings risk is lower in FY23/FY24.

For FY23 and FY24, the analyst estimates comps of -4% and 2.5%, gross margin flat in both years and +2.5% annual SG&A per sq ft growth.

This is expected to result in 105 bps of cumulative EBIT margin contraction in 2023-2024, with an EBIT decline of 12% in FY23 and growth of 4% in FY24.

Price Action: HD shares are trading higher by 0.79% at $334.76 on the last check Wednesday.