Home Depot (HD) is the New York Yankees of the home-improvement retail industry, dominating the category as the team of yesteryear did in baseball.
The Atlanta company serves both regular consumers like you and me as well as professionals in the housing and construction industry.
Home Depot is the largest player in its field and its stock earns a wide-moat rating from Morningstar analysts Jaime Katz and Grace Na. That means they see the company with competitive advantages that will last at least 20 years.
The company earned that rating with its economies of scale and strong brand, they wrote. “Operational excellence and concise merchandising remain key tenets underlying our modest margin expansion forecast,” the analysts said.
“Home Depot’s flexible distribution network should help elevate the firm's intangible brand asset. Faster time to delivery will improve the do-it-yourself experience and market delivery centers catering to the pro business.”
Home Depot’s earnings bump
But like the Yankees, Home Depot faces some short-term obstacles. The problems showed up in the company’s earnings report this week.
In the fiscal fourth quarter ended Jan. 28, Home Depot’s revenue fell 3% from a year earlier to $34.79 billion.
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To be sure, that total exceeded the FactSet analyst consensus of $34.64 billion. But the company predicts sales will climb only 1% in fiscal 2024, which includes a 53rd week that’s expected to produce $2.3 billion of revenue.
Net income in the latest quarter slid to $2.8 billion, or $2.82 a share, from $3.4 billion, or $3.30 a share, a year earlier. The latest per-share number beat analysts’ forecast of $2.77 a share.
So why the disappointing numbers? First, many homeowners completed extensive improvement projects during the pandemic.
And home sales are weak, putting the kibosh on demand for home-improvement products. That weakness stems from high home prices and high mortgage rates.
Analyst Price-Target Moves on Home Depot
But the earnings numbers didn’t deter analysts from their long-term bullishness on Home Depot.
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Citigroup analysts raised their target for the company’s stock price by 25% to $415 from $333, The Fly reports. The stock traded at $370 Thursday. Citi analysts affirmed their buy rating.
The company's guidance may be overly conservative: Revenue could recover in the second half of the year as interest rates decline, sparking home sales, the analysts said.
And that could mean strong demand for large home-improvement projects and big-ticket categories.
Bank of America analysts lifted their stock price target by 8% to $400 from $372, according to The Fly. That was based on expectations for a higher valuation multiple for Home Depot, in light of ascending multiples for Home Depot’s competitors and the market as a whole.
Bank of America analysts, too, maintained a buy rating on the stock.
Jefferies analysts boosted their stock price target by 13% to $412 from $365 and reiterated a buy rating, The Fly reports.
The company’s management has a neutral view on housing in 2024. But the analysts said that "embeds some conservatism," and they think management's comparable-store-sales guidance may have to be pushed up.
Home Depot’s stock has gained 7% year to date and 25% over the past 12 months.
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