Home Depot ‘one of the best long-term stories in retail,’ analysts say

Home Depot Inc. reports its fourth-quarter results before market open on Feb. 21, kicking off retail earnings season.

The home improvement retail giant’s ability to withstand competition from Amazon.com Inc. AMZN,
was one of the reasons it deserves attention, according to JPMorgan analyst Christopher Horvers. “We believe HD remains one of the best long-term stories in retail given company-specific sales and margin initiatives, the duopoly/AMZN-resistant nature of the industry, and significant financial and operating leverage that amplifies EPS growth in better sales environments, ” he wrote in a note released Wednesday.

JPMorgan had an overweight rating for Home Depot.

Of 37 analysts surveyed by FactSet, 21 had an overweight or buy rating, 14 had a hold rating, and two had an underweight or sell rating for Home Depot HD,

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Analysts surveyed by FactSet expected Home Depot to report sales of $35.97 billion, compared with $35.72 billion in the same period last year. Analysts were looking for earnings of $3.27 a share, or $3.28 on an adjusted basis. Home Depot earned $3.21 a share in the prior year’s quarter.

Home Depot’s stock has fallen 8.9% over the last 12 months, compared with the S&P 500 Index’s SPX,
decline of 6.7%.

Barclays recently initiated coverage of Home Depot and rival Lowe’s Cos. LOW,
with an equal weight rating for both companies. “While we think these rank among the top long-term stories, they also have too much short-term top-line uncertainty, in our view,” wrote Barclays analyst Seth Sigman.

In a recent report on the home improvement sector, analytics company Placer.ai highlighted the foot traffic boom of the pandemic years as consumers invested in their living spaces, but also noted the recent pressures on that trend. “In 2022, macroeconomic headwinds and a pull-forward of demand contributed to a dip in home improvement visits when some non-essential projects were shifted to the back burner,” Placer.ai said, also citing last year’s slowdown in home sales.

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Visits to Home Depot fell 14.4% in November 2022, compared with the same period in the prior year, while visits to Lowe’s fell 18%. However, when compared to pre-pandemic levels, foot traffic to Home Depot and Lowe’s gives a rosier picture, according to Placer.ai. In December 2022, visits to Home Depot and Lowe’s were down just 1.9% and 3.7%, respectively, compared with December 2019.

Placer.ai said the broader economic climate could also bring customers back to home improvement stores in even greater numbers. “If mortgage rates and home prices continue to fall in 2023, as they did in the second half of 2022, home sales could heat up and once again drive significant foot traffic,” wrote the data analytics company.

Lowe’s reports its fourth-quarter results on March 1.

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