Home Depot Earnings: Macro Factors Pinch Demand, but Long-Term Outlook Intact

Key Morningstar Metrics for Home Depot

• Fair Value Estimate: $263.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Home Depot’s Earnings

In recent years, macro factors like low housing turnover and elevated interest rates have weighed on Home Depot’s HD results, and the 2024 fiscal first quarter was no exception. Comparable-store sales dropped 2.8% (near our negative 3% prerelease estimate), with comparable transactions declining 1.5% and average tickets declining 1.3%. Pressures were evident in big-ticket comp transactions (purchases over $1,000, down 6.5%), suggesting continued softness in larger discretionary projects.

Nevertheless, we still believe Home Depot is poised to return to growth as it continues investing prudently to enhance diverse facets of its business. We think improvements in in-stock position, return flexibility, and online shopping experience will maintain the firm’s competitive strengths. Importantly, we don’t anticipate a long wait before the company enters positive comp growth territory. We expect growth to return toward the back of the year, as consumer engagement normalizes in discretionary pull-forward categories (resulting in a 1% drop for the full year), which squares with the firm’s reaffirmed outlook.

As we balance the first-quarter results, time value, and reiterated guidance, we don’t plan any material change to our fair value estimate of $263 per share. Home Depot shares still appear highly overvalued, and we suggest investors remain on the sidelines.

Growing pro sales remains the firm’s primary focus. While the timing around the closing of the SRS Distribution acquisition is uncertain, we think Home Depot’s efforts to expand its complex pro approach in 17 different markets (and potentially more) in coming years while investing in capabilities such as on-time delivery to job sites, order management, and a dedicated salesforce should help it expand both consumer wallet and market shares. This underpins our 4% annual average sales growth forecast over the next decade (beyond fiscal 2024).