Wall Street Experts Positive Regarding Home Depot's Stock Outlook?
The Home Depot (HD), a leading home improvement retailer based in Atlanta, Georgia, with a market cap of $383.5 billion, has underperformed the S&P 500 Index over the past 52 weeks, primarily due to broader economic concerns affecting its sector.
Despite this, HD has outperformed the iShares U.S. Home Construction ETF (ITB), likely because of its more diversified and resilient position within the home-related retail space compared to the more narrowly focused home construction sector.
Key reasons for HD’s underperformance relative to the S&P 500, despite beating ITB, include housing market sensitivity, valuation compression, profit margin and earnings growth, dividend stability, and comparison with ITB.
Housing Market Sensitivity: HD’s sales and performance are heavily influenced by the housing market cycle, interest rates, and employment levels. Slower home sales and higher borrowing costs have dampened demand for renovations and major projects, impacting HD’s sales growth expectations and stock price.
Valuation Compression: HD’s price-to-earnings (P/E) ratio has decreased from 27 to 25 over the past year, lower than the S&P 500’s P/E of 30, suggesting investors have become more cautious about its near-term earnings growth prospects.
Profit Margin and Earnings Growth: Although HD reported solid sales growth (up 9.4% year-over-year in Q1 2025), comparable sales slightly declined (-0.3%), and earnings per share decreased compared to the prior year quarter, signaling some margin pressure or cost impacts.
Dividend Stability: HD continues to attract investors through a reliable dividend yield (~2.4-2.5%) and a long history of dividend increases, which supports its stock but may not be sufficient to outperform a broadly rising S&P 500 driven by high-growth tech and other sectors.
Comparison with ITB: The iShares U.S. Home Construction ETF focuses on homebuilders and related stocks that are likely more negatively impacted by the housing slowdown and higher interest rates. HD’s broader business in retailing home improvement materials and services gives it more stability and flexibility, explaining why it outperformed ITB during this period.
In Q1, The Home Depot's adjusted operating margin dropped by 90 basis points, leading to a 3% year-over-year decline in its adjusted EPS to $3.56. However, the company's overall revenue advanced 9.4% year-over-year to $39.9 billion.
HD's stock plunged marginally after delivering mixed Q1 results on May 20. Despite this, the Street-high price target of $475 suggests an upside potential of 23.2% for HD's stock, and the mean price target of $421.94 represents a 9.5% premium from HD's current price levels.
Among the 34 analysts covering The Home Depot's stock, the current consensus rating is "Strong Buy." The breakdown of ratings is as follows: 25 "Strong Buy," one "Moderate Buy," seven "Hold," and one "Strong Sell."
For more information, please view the website's Disclosure Policy here. On the date of publication, Neharika Jain did not have positions in any of the securities mentioned in the article.
All information and data in the article are solely for informational purposes.
- Despite underperforming the S&P 500 Index over the past year, The Home Depot (HD) has found success in outperforming the iShares U.S. Home Construction ETF (ITB) by leveraging its more diversified business strategy in home-related retail.
- For investors seeking opportunities in the finance sector, HD could be an attractive choice, considering its reliable dividend yield and a gradual increase in market confidence, as indicated by the Street-high price target and consensus rating of "Strong Buy."
