If you had a hammer, you probably got it at Home Depot (HD) .
The home improvement retailer has been selling tools, construction products, appliances and other items for about 45 years.
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The Atlanta company, the world’s largest home-improvement retailer, operates 2,298 stores in the 50 states and Washington, Puerto Rico, the U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.
Americans seem to enjoy their tool time. A survey released last month by the market research firm CivicScience found that over the next 12 months, 62% of American homeowners will take on a home renovation or remodeling, up from 48% in 2023.
Necessity is often the mother of DIY home repair, of course. One survey found that nearly 1 in 4 homeowners couldn’t cover a $1,000 home-repair emergency in 2023, and many turned to social media to address issues themselves.
Home Depot reported first-quarter results on May 14, and Ted Decker, chairman, president and CEO, told analysts that the quarter was hurt “by a delayed start to spring and continued softness in certain larger discretionary projects.”
Decker said that within the company’s total addressable market, “the greatest opportunity is with the residential pro contractor who shops across many categories of home-improvement products while working on complex projects.”
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Analyst says ‘salad days of growth’ are over
Roughly half Home Depot’s sales come from professionals like landscapers, roofers and other contractors and subcontractors.
The company earned $3.63 a share, down from $3.82 a year earlier but topping the LSEG consensus analyst estimate of $3.60 a share.
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Revenue totaled $36.42 billion, down from $37.25 billion a year earlier and short of Wall Street’s call for $36.66 billion in sales.
Comparable sales declined 2.8% from a year earlier, while U.S. stores posted negative comps of 3.2%.
While acknowledging the weather challenges, TheStreet Pro’s Stephen Guilfoyle said, “I see folks wearing tee-shirts on the news every night, so this late spring is not everywhere.”
“Could it be that higher interest rates are indeed slowing down consumer demand for large, costly home improvement projects?” he asked. “Probably.”
Guilfoyle said that this was a good business, still able to drive healthy cash flows, but “the salad days of growth appear to be over for now, at least in this environment.”
“I do not feel that one can put HD in their basket and forget about it,” he said, adding that “my feeling is that this stock is for those who watch their portfolios closely.”
Several analysts adjusted their price targets for Home Depot after the earnings announcement.
Truist lowered the investment firm’s price target to $406 from $417 but affirmed a buy rating on the shares.
Comparable sales declined 2.8%, but according to Truist Card data the company was running behind expectations for most of the first quarter before trends improved as spring weather arrived later in April.
Truist said Home Depot saw positive comparable sales for the Complex Pros segment in markets where it has invested in its supply chain and outside sales force.
While many homeowners continue to defer big-ticket purchases, the firm said, that it is a matter of when, not whether, sales will accelerate as people invest in their homes rather than purchasing different ones.
Firm says investors ‘should wait on sidelines’
TD Cowen analyst Max Rakhlenko lowered the firm’s price target on Home Depot to $420 from $440 and reiterated a buy rating on the shares.
Rakhlenko said that despite the small comps miss, top-line trends were broadly in line with expectations.
Bank of America Securities analysts reiterated their buy rating and $425 price target for HD, saying that “while the macro remains choppy, and we expect continued pressure in 2024 on discretionary and big ticket, we expect HD to see continued share gains as it accelerates growth and capabilities with the complex pro, both organically and inorganically.
“We also expect [comparable sales] to see support from HD’s overall strong exposure to the pro customer (50% of sales vs. 25% for Lowe’s (LOW) ), on-shelf availability improvements, strong value proposition, and strategic investments,” B of A said.
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Loop Capital affirmed a hold rating and $360 price target on Home Depot after its “slightly disappointing” first-quarter results. The investment firm also cut its fiscal 2024 revenue view to $154 billion from $155 billion.
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The firm is “optimistic” about Home Depot’s announced acquisition of SRS Distribution, which was announced in March, but it’s too soon to fold it into its models. Loop Capital said investors should wait on the sidelines for a clearer path for demand to recover.
HSBC lowered its price target on Home Depot to $318 from $323 and reiterated a reduce rating on the shares.
The company posted its worst revenue miss in nearly two decades after two years of pulling forward sales during the pandemic, the investment firm said. It cited “muted housing market dynamics” for its reduce rating.
Evercore ISI analyst Greg Melich lowered the firm’s price target on Home Depot to $398 from $420 and repeated an outperform rating on the shares.
The market provides a chance to buy Home Depot at a market multiple on depressed earnings “every decade or so,” said Melich, who thinks 2023-2024 is “that opportunity.”
“Less bad” first-quarter comparable sales of down 2.8% are expected to recover to near flat by year end, and the firm’s Home Improvement Lead indicator supports a “check shaped” recovery, the firm said. It adds that its 2024 earnings estimate pushes up to $15.25 a share, accounting for the first-quarter beat.
UBS lowered its price target on Home Depot to $400 from $411 and repeated a buy rating on the shares.
Home Depot’s report was mostly in line with market expectations, but some favorable undertones set the stage for an eventual recovery, the investment firm said. UBS said Home Depot’s top line should recover nicely over time, especially as the company continues to gain market share.
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