Should You Buy The Dip In Home Depot? Wall Street Debates

Home Depot Inc HD traded lower Tuesday following its Q1 earnings report with the decline carrying over into Wednesday's session.

Should investors be buyers on the dip? Some of the Street's top analysts weigh in.

The Analysts

• Bank of America's Elizabeth Suzuki maintains a Buy rating on Home Depot with a price target lifted from $215 to $219.
• Morgan Stanley's Simeon Gutman maintains an Overweight rating with an unchanged $210 price target.
• Baird's Peter Benedict maintains an Outperform rating with an unchanged $215 price target.
• Stifel's John Baugh maintains a Buy rating with an unchanged $225 price target.
• KeyBanc Capital Markets' Bradley Thomas maintains a Sector Weight rating with no assigned price target.

The stock traded around $186.91 at time of publication Wednesday afternoon.

Bank Of America: Wrong Headline

Home Depot appeared to have missed expectations, but that actually isn't the case according to Suzuki. Heading into the release, consensus estimates were "stale" and weren't revised to accurately reflect the unseasonably cold spring weather.

In fact, any lost sales in the first quarter due to weather will likely pushed into the second quarter, the analyst wrote in a note. This view is supported by CFO Carol Tome's comments that May comps are up by a double-digit so far.

Morgan Stanley: No Reason To Be Concerned

Home Depot's earnings and conference call showed no indication that part of the company's business is seeing poor demand trends, Gutman said in a note. Granted, comps did fall short of expectations and total transactions declined for the first time in seven years.

When excluding the garden category (15 to 20 percent of sales) or the Northern division, however, the company's same-store sales would have read +6.5 percent.

Baird: Buy The Dip

Home Depot's underlying business remains "healthy" based on an re-acceleration of comps in the second quarter to date, Benedict said in a note. The ongoing momentum coupled with the company's ongoing accelerated investments will likely strengthen its "already-formidable competitive position" over the longer term.

Investors are encouraged to look at Home Depot's near-term weakness as a "good buying opportunity" as the earnings shortfall is merely seen as a "delayed start to spring."

Stifel: Key Debate Ahead

The direction of Home Depot's stock is based on home remodeling spending at a time of higher interest rates, Baugh said in a note. Investors have no reason to be concerned as high rates is tied to a stronger economy, which in turn lifts incomes that shouldn't impact the underlying demand for Home Depot's products and services.

KeyBanc: Wait For A Better Entry

Home Depot's status as a "best-in-class" retailer remains unchanged given management's consistent execution, healthy growth and strong financial return, Thomas said in a note. While the first quarter was impacted by weather trends that have since improved, investors may want to consider becoming more constructive on the stock but at a lower valuation.

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