Pro Ecosystem Investments And Store Expansion Will Strengthen Future Market Position

Key Takeaways

• Investments in the Pro ecosystem and SRS expansion are expected to drive revenue growth through improved sales and integration.
  
• Enhancing digital and delivery capabilities seeks to boost customer engagement, conversion rates, and store efficiency, supporting revenue and margin improvements.
  
• Higher interest rates and macroeconomic uncertainty may limit Home Depot's revenue growth, while pressures on big-ticket projects and profitability present additional challenges.

Catalysts

Operates as a home improvement retailer in the United States and internationally.

• The continued investment in Home Depot's Pro ecosystem, including improved delivery options, inventory management, and specialized sales teams, is expected to drive incremental sales growth, particularly within the Pro segment, potentially boosting revenue.
  
• The acquisition and expansion of SRS, including the opening of new locations and integration into Home Depot's QuoteCenter, are anticipated to contribute to sales growth in the coming years, supporting overall revenue growth.
  
• Expansion of Home Depot's store footprint, particularly in high-growth areas, aims to relieve pressure on high-volume stores and meet increased demand, contributing to revenue growth.
  
• Investments in digital and delivery capabilities, which have led to faster delivery speeds and increased customer engagement, are likely to enhance customer satisfaction and drive higher conversion rates and increased revenue.
  
• Continued optimization of supply chain and inventory management to support on-shelf availability and reduce shrinkage should help maintain or improve net margins and operating efficiency.

Home Depot Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Home Depot's revenue will grow by 3.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.3% today to 9.7% in 3 years time.
• Analysts expect earnings to reach $17.4 billion (and earnings per share of $17.75) by about April 2028, up from $14.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 31.2x on those 2028 earnings, up from 24.5x today. This future PE is greater than the current PE for the US Specialty Retail industry at 16.2x.
• Analysts expect the number of shares outstanding to grow by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.87%, as per the Simply Wall St company report.

Home Depot Future Earnings Per Share Growth

Risks

• Ongoing pressure on large remodeling projects due to a higher interest rate environment may continue to affect Home Depot's revenue growth, particularly in finance-dependent big-ticket items.
  
• The 2025 expected decline in adjusted diluted earnings per share suggests potential challenges in maintaining profitability, impacting future earnings.
  
• Despite sales growth through SRS acquisition and new stores, natural deleverage due to expected sales growth figures below the operational leverage point could impact net margins.
  
• An uncertain macroeconomic environment, without expected improvements in housing turnover or interest rates, may limit overall growth and revenue opportunities.
  
• Potential issues such as weather impacts, softer customer engagement, and pressures on discretionary spending may pose risks to revenue consistency and operational performance.

Valuation

• The analysts have a consensus price target of $431.496 for Home Depot based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $484.0, and the most bearish reporting a price target of just $297.34.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $178.5 billion, earnings will come to $17.4 billion, and it would be trading on a PE ratio of 31.2x, assuming you use a discount rate of 7.9%.
• Given the current share price of $365.52, the analyst price target of $431.5 is 15.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.