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.

Investments in technology, acquisitions, and expansion of Pro services are enhancing operational efficiency, customer loyalty, and market leadership within complex project segments.
Shifting consumer trends, aging housing, and growing focus on sustainability are fueling demand for specialty home upgrades, supporting long-term growth across multiple customer bases.
Economic uncertainty, rising costs, and inventory pressures are straining profitability and growth, while elevated capital needs and external dependencies create sustained risk to future performance.

Catalysts

About Home Depot

Operates as a home improvement retailer in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Home Depot's sizable investments in advanced supply chain technologies, machine learning-based delivery optimization, and in-store digital enhancements are yielding faster delivery, higher customer satisfaction, and improved operational productivity-trends that are expected to boost net margins and drive long-term earnings growth.
The company's targeted acquisitions (SRS, pending GMS) and continued expansion of its Pro customer ecosystem are positioning Home Depot as the supplier of choice for complex, higher-ticket projects, which is set to increase market share, customer lifetime value, and organic revenue growth over time.
Homeowners are exhibiting pent-up demand for renovation and remodeling, with surveys indicating large projects are being deferred but not cancelled; as economic and interest rate uncertainty improves, there is significant upside to underlying demand, benefitting both revenue and earnings.
The aging U.S. housing stock and remote work dynamics continue to support sustained home improvement activity, ensuring a stable and growing base of customers for both DIY and Pro offerings, which should drive long-term revenue growth.
Broader societal shifts toward energy efficiency, climate resiliency, and sustainable home upgrades are increasing demand for specialty products and services, a trend that Home Depot is well-positioned to benefit from given its wide product assortment and expanding premium category offerings-likely contributing to both higher gross margins and top-line expansion.

Home Depot Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Home Depot's revenue will grow by 3.4% annually over the next 3 years.
Analysts assume that profit margins will increase from 8.9% today to 9.6% in 3 years time.
Analysts expect earnings to reach $17.4 billion (and earnings per share of $18.04) by about September 2028, up from $14.6 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 32.1x on those 2028 earnings, up from 28.3x today. This future PE is greater than the current PE for the US Specialty Retail industry at 18.7x.
Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

Home Depot Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Persistent softness in larger discretionary remodeling projects, with management repeatedly noting ongoing customer deferment of big-ticket renovations due to economic uncertainty and high interest rates, may limit future revenue growth from a historically important category.
Flat to declining adjusted diluted earnings per share and guided operating margins (expected to decline year-over-year, with operating margin at approximately 13% vs. 14.5% last year) suggest increased cost pressures and slower profit growth, potentially undermining long-term earnings expansion.
Inventory build-up-inventory up $1.8 billion year-over-year with slower inventory turns (down from 4.9x to 4.6x)-may signal slowing sales velocity and possible margin risk if demand expectations are not met.
Continuous need for high capital expenditures (projected at approximately 2.5% of sales; ~$915 million this quarter) for store and distribution center modernization, omnichannel investments, and integration of large acquisitions (SRS, pending GMS) may pressure free cash flow and constrain shareholder returns over the long term.
Dependence on ongoing favorable economic and policy environment (e.g., interest rate cuts, permanence of tax benefits), with management explicitly stating that improved performance is contingent on macro factors outside the company's control, introduces uncertainty that could negatively impact both revenue and margins if conditions deteriorate.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $437.812 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 $481.0, and the most bearish reporting a price target of just $335.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $182.4 billion, earnings will come to $17.4 billion, and it would be trading on a PE ratio of 32.1x, assuming you use a discount rate of 8.5%.
Given the current share price of $415.34, the analyst price target of $437.81 is 5.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
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.

Have other thoughts on Home Depot?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Advanced Supply Chain And Digital Tools Will Transform Remodeling