After Earnings, Is Home Depot Stock a Buy, a Sell, or Fairly Valued?

Home Depot released its third-quarter earnings report on Nov. 18. Here’s Morningstar’s take on Home Depot’s earnings and stock.

Key Morningstar Metrics for Home Depot

• Fair Value Estimate: $335.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of The Home Depot’s Q3 Earnings

Home Depot’s third-quarter results included same-store sales growth of 0.2% and adjusted operating margin compression of 50 basis points, to 13.3%. The firm closed the GMS acquisition in September, which contributed $900 million in sales but added 15 basis points in operating margin headwind.

Why it matters: The lack of storms led to difficult comparisons, evidenced by comp transactions that fell 1.6%. Weather has also proven less significant in the fourth quarter to date, which will create further sales and profit pressure in the near term.

• An implied fourth-quarter same-store sales decline of 0.5% and EPS of $2.50 signals nearly 150 basis points of operating margin contraction. Part of this drop stems from lapping a 14-week period in 2024, but the primary impact is due to the negative margin mix from the SRS and GMS acquisitions.
• Existing home sales volume and price growth remain positive, supporting category spending. However, we don’t expect to see much momentum in sales growth until 30-year mortgage rates fall below 6%, when we believe turnover would pick up because of homeowners’ willingness to move.

The bottom line: We hold our $335 fair value estimate for wide-moat Home Depot and see shares as fairly valued. The stock has rarely traded at a discount in the last decade, and it has not traded in fair value territory since 2023. Investors should keep an eye on the shares, as they could soon be attractive.

• Shares have fallen 12% in the year to date (through Nov. 18), widely underperforming the broader equity indexes. Incremental share pressure on the print has surfaced on a lowered 2025 outlook that now includes adjusted operating margin of 13.0% (versus 13.4% prior) and EPS of 14.48 ($15.24).
• As transaction and integration costs wane, we foresee operating margins returning to around 14% over the next five years. This is predicated on top-line growth of 4%, which is achieved through modest price increases, distribution location expansion, and rising cross-sales growth from pros.

Fair Value Estimate for Home Depot Stock

With its 3-star rating, we believe Home Depot’s stock is fairly valued compared with our long-term fair value estimate of $335. The firm’s lowered outlook for 2025 includes slightly positive same-store sales growth (versus 1% prior), an adjusted operating margin of 13% (13.4%), and EPS of $14.48 ($15.24). This implies a fourth-quarter same-store sales decline of 0.5% and EPS of $2.50, signaling nearly 150 basis points of operating margin contraction. Part of this drop stems from lapping a 14-week period in 2024, but the primary impact is due to the negative margin mix from the SRS and GMS acquisitions. Our updated forecast includes same-store sales of 0.1%, an adjusted operating margin of 13.0%, and EPS of $14.53.

Read more about Home Depot’s fair value estimate.

Economic Moat Rating

We assign Home Depot a wide economic moat. As the largest global home improvement retailer, the company possesses a competitive edge owing to its brand intangible asset and cost advantage, in our view. Over the past 10 years, Home Depot’s sales growth has outpaced the building materials and garden equipment and supplies dealer industry’s average growth of 5.4% by 150 basis points annually (based on the US Census Bureau data), an indication of the brand’s ongoing relevance. We expect Home Depot’s strong brand equity and extensive scale should enable incremental market share gains in a highly fragmented $1 trillion North American home improvement market, on top of the roughly 17% market share it has amassed thus far (given more than $159 billion in sales in 2024).

Read more about Home Depot’s economic moat.

Financial Strength

Home Depot has had no concerns tapping the credit markets to finance its business in recent years. The firm raised $10 billion in debt during the first half of 2024 to help finance the $18.25 billion SRS Distribution acquisition. This left a total debt above $53 billion at the end of 2024. Management has halted share repurchases with higher expected debt service as a result of the SRS acquisition, but we model share repurchases to resume at the end of 2026, after Home Depot works its leverage metrics back below 2 times after partially financing the GMS transaction this year. Including the impact of recent acquisitions, EBIT is forecast to cover the net interest expense 9 times at the end of 2025.

Read more about Home Depot’s financial strength.

Risk and Uncertainty

We give Home Depot a Medium Uncertainty Rating, owing to its strong brand recognition, which has helped stabilize sales through the cycle. Sales are largely driven by greater consumer willingness to spend on category goods in both necessary and discretionary home purchases. Thanks to the MRO and pro business (HD Supply, SRS, and GMS), revenue could be less cyclical, as the maintenance side of the business can prove more consistent. In uncertain economic times, consumers remain in their homes, embarking on improvement projects, boosting DIY revenue. Alternatively, when home prices rise, the wealth effect generates a psychological boost to consumers, reinvigorating professional sales thanks to a higher willingness to spend on big home improvement projects.

Read more about Home Depot’s risk and uncertainty.

HD Bulls Say

• Home Depot’s continued investments in supply chain and merchandising should improve productivity and support its leadership position in the home improvement market.
• The firm has returned $73 billion to its shareholders through dividends and share buybacks over the past five years, more than 20% of its market cap. We forecast Home Depot returning $75 billion to owners over the next five years.
• The large pro market is about $250 billion. As Interline and HD Supply make up a low-double-digit share, SRS reaches a new end user, and GMS joins the mix, there is share up for grabs.

HD Bears Say

• Weak consumer spending, higher interest rates, or an economic downturn could hinder sales for home improvement projects and affect Home Depot’s growth.
• IT and supply chain improvement gains could prove more challenging to achieve, as simpler efforts have already bore fruit. Further productivity efforts could face some implementation risks, creating inconsistent profitability.
• As Home Depot digests more than one sizable acquisition, integration risk remains, and management could be distracted by idiosyncratic issues at larger tie-ups like SRS or GMS.

This article was compiled by Frank Lee.