If you want something done right, go to Home Depot (HD) and do it yourself.
The world's largest home improvement specialty retailer has built a massive business appealing to DIY and professional customers.
However, Home Depot went through a rough patch earlier this year and warned that sales would be weaker than expected in the latter half of 2024 due to high interest rates and consumer uncertainty.
Related: Home Depot CEO sounds the alarm on a growing problem
During the company’s second-quarter earnings call, Ted Decker, chairman, president, and CEO, said, “Higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects.”
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"Additionally, we saw continued softness in spring projects, which were also impacted by the extreme weather changes throughout the quarter," he said.
Nevertheless, Decker said the fundamentals of the home improvement market remain strong, "and we have significant growth opportunities in front of us."
Home Depot's struggles could be behind it
So, how are things looking now?
Well, the Joint Center for Housing Studies of Harvard University said last month that annual expenditures for home renovation and maintenance are projected to grow by 1.2% through the third quarter of 2025.
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“A continued thaw in new home construction and sales of existing homes bodes well for an uptick in residential improvement and repairs next year,” Carlos Martín, director of the Remodeling Futures Program at the center, said.
“Additionally, stronger gains in home values and thus home equity levels should boost both discretionary and ‘need-to-do’ replacement projects for owners staying in place," Martin added.
Pending home sales rose in September, according to the National Association of Realtors.
All four major regions experienced month-over-month gains in transactions. Year-over-year, the Northeast and West registered increases while sales remained steady in the Midwest and South, the association said.
“Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” Lawrence Yun, the group’s chief economist, said in a statement. “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”
Looking ahead, Yun said that he foresees slower home price appreciation and corresponding increases in sales.
Related: Analyst hammers out new stock price targets for Home Depot, Lowe's
“After two years of sluggish home sales in 2023 and 2024, existing home sales are forecasted to rise to 4.47 million in 2025 and more than 5 million in 2026,” Yun said. “During the next two years, expect a slower rate of growth in home prices that’s roughly in line with the consumer price index because of additional supply reaching the market.”
And the Federal Reserve approved its second consecutive interest rate cut on Nov 7, another good sign for the home improvement sector, as rate cuts make borrowing money cheaper for homeowners.
Or, as JPMorgan told investors recently, the home improvement industry "is getting less worse."
It said that some extended fall season will help outdoor categories, while recent hurricanes are expected to add to comp sales upside. Home Depots 'digital prowess'
Home Depot's sales rebound could help its stock price
Hurricane Helene made landfall in Florida on Sept. 26, then plowed through the South, including North Carolina, while Hurricane Milton landed on Oct. 9 on the west coast of Florida.
JPMorgan raised its price target on Home Depot to $450 from $395 and kept an overweight rating on the shares as part of a third-quarter earnings preview.
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The firm also increased its same-store sales in the third quarter for both Home Depot and fierce rival Lowe's (LOW) .
Home Depot is scheduled to report third-quarter earnings on Nov. 12, while Lowe's is slated to report quarterly results a few days later.
Shares of Home Depot have climbed 17% year-to-date, and the stock has surged nearly 40% from a year ago in anticipation of improving construction trends.
Telsey Advisory upgraded Home Depot to outperform from market perform with a price target of $455, up from $360.
The firm said it now projects a return to outperformance for the shares relative to the S&P 500 over the next year.
Telsey said It expects further market share gains given Home Depot's "best-in-class execution and digital prowess."
Home Depot's recent acquisition may pay off soon
In June, Home Depot completed its $18.3 billion acquisition of SRS Distribution, a McKinney, Texas-based building products distributor. This move boosted the company's total addressable market by $50 billion to roughly $1 trillion.
Related: Home Depot agrees to make its largest acquisition ever
SRS, which will operate independently, has 760 warehouses and more than 4,000 trucks to deliver its goods.
Telsey said the SRS acquisition gives Home Depot a "significant opportunity" to grow its Pro business by better serving complex pro customers. Roughly half of the company's business comes from professional contractors rather than do-it-yourself homeowners.
Truist analyst Scot Ciccarelli raised the firm's price target on Home Depot to $459 from $455 and kept a buy rating on the shares as part of a broader research note previewing Q3 results among select consumer names.
The monthly raw data sales observations suggest the top-line inflected positive in October for the first time in two or more years, representing a "significantly positive data point", Ciccarelli said.
Related: Veteran fund manager sees world of pain coming for stocks
