Home Depot: Judicious Investments Set To Support Brand Prowess and Low-Cost Position

At its June 13 investor day, we confirmed our belief that Home Depot’s firm commitment to funnel investments into diverse facets of its business (technology, stores, merchandising, product innovation) should help it to maintain its market leadership position and brand strength, underpinning our wide moat rating. While fiscal 2023 looks challenging due to a tough macroeconomic backdrop and softening demand (we forecast 3% decline in sales and 9% drop in diluted EPS, both within the guided range), fundamental demand drivers for the home improvement market (home equity and aging housing stock) remain favorable. As we maintain our long-term prognosis for the business (low-single-digit average top-line growth and midteens operating margins by fiscal 2032), we don’t plan a material change in our $259 fair value estimate. Shares continue to strike us as rich, trading at a 15% premium.