Home Depot Poised For Long-Term Win In Retail Despite Current Macro Challenges: Analyst

Telsey Advisory Group analyst Joseph Feldman reiterated the Market Perform rating on Home Depot, Inc. HD, lowering the price target to $330 from $335.

Feldman lowered 3Q23 and annual estimates for Home Depot owing to higher interest, inflation, and other macro factors that have intensified and beyond anticipation since the end of August. 

Home price appreciation is slowing, and real disposable income has been under pressure due to inflation and higher interest rates—both of which historically have led to lower spending on home improvement, the analyst cautioned.

Feldman adds that consumers have also continued to spend more on experiences outside the home, such as travel and entertainment, since the end of the pandemic instead of on home-related items and projects. 

The company is also seeing weakness in more discretionary categories—like flooring, kitchen, bath, and interior projects—and in bigticket products—like appliances.

Overall, the analyst believes Home Depot’s business is likely to remain under near-term pressure owing to the challenging macro backdrop, soft housing market trends, lapping the solid gains related to COVID-19 and government stimulus in the past three years.

In the long term, Home Depot is expected to be a winner in retail, given its best-in-class execution, digital prowess, and permanent and hybrid work-from-home arrangements, causing more maintenance and repair activity. 

Home Depot also should be able to leverage HD Supply to grow its share in the $100 billion fragmented maintenance, repair, and operations (MRO) market. 

For 3Q23, the analyst cuts the EPS estimate to $3.75 from $3.79, with an inline operating margin contraction of ~140 bps to 14.4%. 

For 2023, Feldman lowered the EPS estimate to $15.19 from $15.28, with an inline operating margin compression of ~100 bps to 14.3%. 

For 2024, the analyst now forecasts EPS of $16.25 vs. $16.35 previously.

Price Action: HD shares are trading lower by 0.30% to $291.08 on the last check Wednesday.