During the dark days following the COVID-19 outbreak, HD soared in value as housebound homeowners feathered their nests while waiting out the pandemic. After starting 2021 near $270, HD gained 50 percent before the end of the year.
It's been a wild ride since then. In October 2023, HD was still trading around $270. But it took off with the rest of the stock market once the Fed began cutting interest rates, soaring above $430 late last year.
This week, HD opened a little under $400. At that price, the company is valued at 27 times trailing earnings, slightly higher than the 25 multiple for the S&P 500 Index.
In fact, most of Home Depot's financial metrics appear to be in line with the overall stock market. The analysts that follow the company have an average one-year price target for HD of $424, which implies 6 percent appreciation over the next twelve months.
Housing Market Recovery
I reviewed The Home Depot's fiscal 2025 Q2 results that were released before the market open on August 19. I was looking to see if the company is still on track to meet its guidance for comparable sales growth of 1 percent this year while maintaining an operating margin of at least 13 percent.
The good news is the company did meet those goals. It also reaffirmed its guidance for this fiscal year, including total sales growth of 2.8 percent and an adjusted operating margin of 13.4 percent.
The bad news is that guidance also includes a 3 percent decline in diluted earnings per share (EPS). Despite higher revenue and a wider operating margin, the cost of import tariffs is cutting into the company's profitability.
Nevertheless, HD jumped more than 4 percent that morning. Presumably, Wall Street was anticipating a downward revision in guidance that did not materialize.
What would really help The Home Depot more than a hearty hurricane season is a resurgence in the residential real estate market, which has been moribund since consumer confidence hit the skids four months ago. Rather than profiting from rebuilding homes that have been destroyed by a natural disaster in one region of the country, the company would be much better off if there was an uptick in new homes being built all over the country.
That is why the biggest event to positively impact The Home Depot this fall would not be a destructive hurricane, but a reduction in mortgage rates that makes new homes more affordable. We'll find out more about that on September 17, when the Federal Open Market Committee releases its next monetary policy statement.
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