Key Takeaways
- Home Depot stock is up 12% in a week, most of it on Nov. 4, when housing stocks rallied after the midterm elections.
- Comparable customer transactions fell 1.0% in the second quarter, so the stores have yet to show the pickup the rally is pricing in.
- Analysts expect normalized EPS to grow just 2% this fiscal year.
- The third-quarter report on Nov. 17 is the first check on whether the rally’s housing bet is reaching the stores.
Home Depot (HD) stock rose 12% in the week through Nov. 4, while the S&P 500 slipped 0.7% and the Nasdaq 100 fell 4.6%.
Most of that gain came on Nov. 4, the day after the midterms, when housing stocks rallied and Home Depot closed up 6.5%. Before that, it rose about 3.6% on both Oct. 29 and Nov. 2, with no company news either day.
Investors are betting on Washington
Democrats swept Congress after a campaign in which housing affordability was a big issue. Investors are now betting on new housing action and lower mortgage rates, though analysts cited by Yahoo Finance doubt new housing aid will become law. Homebuilders jumped, and Home Depot rallied along with Lowe’s.
But Wednesday’s dip in rates was tiny: the 10-year Treasury yield fell a few basis points, to about 4.9%. Home Depot’s big remodels need home sales, and those ran at just a 3.99 million annual pace in September, down 2.2% from a year earlier.
Shoppers are still making fewer, bigger trips
Home Depot’s latest numbers are from its second quarter, which ended Aug. 2. Sales rose 5.7% to $47.9 billion, but $1.4 billion of the $2.6 billion increase came from its GMS acquisition. Comparable transactions fell 1.0% while the average ticket rose 2.8%, as shoppers stuck to smaller projects.
Management guides for adjusted EPS of flat to up 4% this fiscal year, which ends in January, from $14.69 last year. Analysts sit near the middle, at $15.02 of normalized EPS, with growth picking up to about 6% the year after.
Those estimates won’t move much until more homes change hands.
TIKR tracks 36 analysts on Home Depot. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Home Depot, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Home Depot’s Analyst Ratings
What Nov. 17 has to show
Investors have already paid up for that hope. As of Monday, the stock traded at 22x forward earnings, right at its five-year average and up from about 21x in late October.
At Wednesday’s $355.48 close, it’s closer to 23x.
The Street’s consensus target has drifted down from $439 a year ago to $379.
That’s only about 7% above Wednesday’s close. Stifel $322, Hold) and Bernstein ($344, Market Perform) both have targets below that close.
Home Depot holds its third-quarter call on Tuesday, Nov. 17. Transactions are the number to watch, along with whether management keeps its outlook for flat to 2% comparable sales growth this year.
Investors are paying for a housing thaw that hasn’t reached the stores yet, and Nov. 17’s transaction count will show whether that’s starting to change. If Congress acts and mortgage rates really fall, big projects could come back quickly, and anyone who waited would pay more.
So what is Home Depot stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
