HD: Ongoing Investments And New Tools Will Support Post Headwind Share Gains

We are trimming our Home Depot fair value estimate by about $5 to reflect the Street wide reset in price targets, as analysts factor in weaker near term demand, modestly lower growth and margins, and a slightly higher discount rate, even as they largely maintain positive long term ratings on the stock.

Analyst Commentary

Street commentary on Home Depot has shifted more cautious in the near term but remains broadly constructive on the company’s long-term earnings power and market share opportunity. This has led to a cluster of target cuts that still sit comfortably above the current share price.

Bullish Takeaways

• Bullish analysts largely maintain Buy or Outperform ratings despite lower targets, signaling continued conviction that Home Depot can compound earnings and free cash flow once the macro backdrop normalizes.
• Several notes highlight that the earnings miss and guidance cut were driven in part by transitory factors, such as unusual weather and tougher storm-related comparisons, which are not seen as impairing the core earnings algorithm.
• Ongoing investments in Pro, digital capabilities and recent acquisitions are viewed as positioning the company to accelerate growth and gain share when housing and discretionary demand recover, supporting a premium multiple over time.
• Some bullish analysts frame the post-reset valuation and de-risked outlook as creating a more attractive entry point for medium- to long-term investors, particularly if upcoming investor events can restore confidence in the multiyear growth plan.

Bearish Takeaways

• Bearish analysts emphasize that home improvement category demand appears softer than previously expected, with Q3 results, negative trends in October and a tough start to Q4 undermining the prior second-half recovery narrative.
• There is growing concern that mix shift toward lower-margin wholesale businesses will pressure operating margins and earnings growth, at least over the next several quarters, which some view as justifying lower valuation multiples and price targets.
• Several notes flag a lack of clear near-term catalysts to reaccelerate category growth, especially as consumer data points and the housing backdrop point to a still-pressured macro environment.
• One downgrade explicitly cites a challenging near-term setup and stagnant to deteriorating category trends, with earnings estimates now reset meaningfully below prior consensus. This is seen as a factor that could limit upside until fundamentals inflect.

What's in the News

• Reaffirmed 2025 guidance with about 3% total sales growth, slightly positive comparable sales and operating margin of roughly 12.6%, while guiding 2025 diluted EPS to decline about 6% from 2024 and 2026 EPS to return to flat to 4% growth (company guidance).
• Launched the Home Depot Creator portal, a new creator first hub that connects digital content creators with Home Depot campaigns, suppliers and shoppable tools so they can monetize home improvement content and drive product recommendations (product announcement).
• Introduced Blueprint Takeoffs, an AI powered tool that generates faster, more accurate and cost effective material lists and quotes for single family construction projects, enabling Pros to source all materials through Home Depot with dedicated support (product announcement).
• Expanded omnichannel reach in Canada via a new Instacart partnership that offers same day delivery, including Big & Bulky items up to 60 pounds, from more than 175 Home Depot Canada stores nationwide (client announcement).
• Approved amendments to company by laws, tightening and clarifying rules around director nominations, shareholder proposals, special meeting requests and meeting procedures to align with evolving governance practices and Delaware law (corporate governance filing).

Valuation Changes

• The Fair Value Estimate has been reduced slightly to about $399 from roughly $403, reflecting modestly softer assumptions.
• The Discount Rate has risen slightly to about 8.9% from roughly 8.7%, modestly increasing the hurdle rate applied to future cash flows.
• Revenue Growth has been nudged down slightly to about 3.6% from roughly 3.7%, incorporating a somewhat slower top-line trajectory.
• The Net Profit Margin has edged lower to about 9.0% from roughly 9.2%, indicating a slightly more conservative view on long-term profitability.
• The future P/E multiple has increased marginally to about 31.0x from roughly 30.6x, implying a small uptick in the valuation applied to projected earnings.