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Valued at a market cap of $385 billion, home improvement retailer Home Depot (HD) is among the largest companies in the world. Over the last two decades, Home Depot has returned 830% to shareholders. However, cumulative returns are much higher at 1,380% if we account for dividend reinvestments. Comparatively, the S&P 500 Index ($SPX) has returned 639% in dividend-adjusted gains since November 2004.
Let’s see what you should expect from Home Depot’s upcoming earnings report next week, and whether the blue-chip dividend stock remains a top investment choice right now.
What Do Analysts Expect from Home Depot?
Atlanta-based Home Depot (HD) is a home improvement retailer that sells building materials, home improvement products, and lawn and garden products. It also offers installation services for flooring, cabinets, countertops, furnaces, central air systems, and windows. Home Depot serves professional renovators, contractors, maintenance professionals, handymen, property managers, and others.
Home Depot is scheduled to release its fiscal Q3 (ended in October) results before the market opens next Tuesday, Nov. 12. According to Wall Street, Home Depot is forecast to report revenue of $39.13 billion and adjusted earnings per share of $3.64 in Q3 of 2024. In the year-ago period, HD reported revenue of $37.7 billion and earnings of $3.81 per share. So, revenue growth is forecast at 3.8%, while earnings might narrow by 4.5% year over year in Q3.
During its last earnings call, Home Depot explained it remains cautious due to weaker-than-expected sales in the second half of the year amid high interest rates and consumer uncertainty. In fiscal 2025, it expects full-year comparable sales to decline between 3% and 4% year over year. However, its recent acquisition of SRS Distribution, which sells supplies to landscaping and roofing professionals, should drive top-line growth in the near term.
In an August CNBC interview, Home Depot CFO Richard McPhail claimed that consumers have delayed buying and selling homes due to high interest rates. They have also deferred spending on bigger projects, such as kitchen renovations.
Is HD Stock a Good Investment Right Now?
Notably, Home Depot has a financially stable customer base compared to other retailers. It generates around half of its sales from professionals and the rest from individual households. In fiscal Q2, its comparable sales were down 3.3% year over year, steeper than the 2.1% decline forecast by analysts. It was the retail giant's seventh consecutive quarter of falling comparable sales.
While customer transactions fell 2%, the average ticket size dropped to $88.90, from $90.07 in the year-ago period. With the potential for multiple interest rate cuts on the horizon, Home Depot could see an uptick in demand over the next year, driving share prices higher.
Out of the 35 analysts covering HD stock, 25 recommend “strong buy,” one recommends “moderate buy,” and nine recommend “hold.” The average target price for HD stock is $412.69, about 4% above the current trading price.
Analysts expect HD's sales to rise by 3% to $157 billion in fiscal 2025 and by 3.8% to $163 billion in 2026, while its adjusted earnings per share are forecast to expand from $15.11 in 2024 to $15.63 in 2026. So, priced at 24.8x forward earnings, HD stock might seem expensive given its single-digit growth forecasts.
However, investors might also consider HD stock for its dividend yield of 2.3%. HD’s annual dividend expense is around $9 billion, while its free cash flow has surpassed $16 billion in the past four quarters. So, the blue-chip stock generates enough cash flow to pay and increase its dividends each year. Its annualized dividend has risen from $0.95 per share to $9 per share in the last 14 years.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
