Home Depot Earnings: Stable Demand Exit Set to Persist in 2025 but Turnover Still Weak; Shares Rich

Wide-moat Home Depot posted better-than-expected fourth-quarter revenue despite concern around the macro environment and consumer sentiment. Sales of $39.7 billion were above our $38.8 billion estimate, with comparable sales lifting 0.8%, marking the first positive quarter since 2022. The adjusted operating margin fell 40 basis points to 11.7% (below our 11.8% forecast) on costs related to the SRS integration, the impact of which should subside over the back half of 2025. We plan to maintain our $292 fair value estimate and see shares as nearly 35% overvalued, as we think the market is already pricing in the return of operating leverage when housing market improves. This is likely to take some time, however, given Home Depot's prognosis for depressed turnover and elevated interest rates to remain in 2025.