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Home Depot Earnings: Prudently Navigating Macro Pressures With Strategic Execution

We continue to view Home Depot’s stock as overvalued and consider its recent surge to be overdone.

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The Home Depot retail store.

Key Morningstar Metrics for Home Depot

What We Thought of Home Depot’s Earnings

Home Depot’s HD tepid fourth-quarter results reflect a flurry of macro pressures, including slow housing turnover and elevated mortgage rates. The firm’s net sales dropped 2.9% to $34.8 billion and its diluted earnings per share came in at $2.82, largely in line with our forecast. The top-line decline was a byproduct of weaker customer transactions and average tickets, which contracted by 1.7% and 1.3%, respectively. Big-ticket purchases (those over $1,000) were especially slow, declining 6.9%.

The firm expects housing headwinds to persist, leading to declines of 1% in both comparable sales and EPS (excluding the 53rd week) in fiscal 2024. We intend to nudge our 2024 growth forecasts of 2% for sales and 7% for EPS lower, but we don’t plan any material change to our long-term outlook or our fair value estimate of $263 per share. As such, we continue to view Home Depot’s shares as overvalued (trading at a 28% premium to our existing intrinsic valuation) and consider their recent surge (in which they climbed nearly 20% over the past three months) to be overdone. Specifically, we believe the current share price implies expectations that far exceed our forecast for 4% annual sales growth (beyond fiscal 2024) and nearly 16% operating margins.

Against the murky housing backdrop, we view Home Depot’s persistent efforts to elevate the customer experience to be strategically cogent. These efforts include removing friction in its online channels and growing pro wallet share by building its outside salesforce and implementing new order management and digital capabilities. Combined with the firm’s robust scale, extensive store footprint, and selling apparatus (factors that underpin our wide moat rating), we believe Home Depot is poised to make meaningful strides in the underpenetrated and more complex pro market and chalk up share gains in the coming years.

The Home Depot Stock Price

Data as of Source: Morningstar Direct.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Authors

Jaime M Katz

Senior Equity Analyst
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Jaime M. Katz, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She covers home improvement retailers and travel and leisure.

Before joining Morningstar in 2011, Katz was an associate for Credit Agricole Corporate and Investment Bank. She also worked in equity research for William Blair for three years and spent three years in asset management at Mesirow Financial.

Katz holds a bachelor’s degree in economics from the University of Wisconsin and a master’s degree in business administration from the University of Chicago Booth School of Business. She also holds the Chartered Financial Analyst® designation. She ranked first in the leisure goods and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

Grace Na

Associate Equity Analyst
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Grace Na is an associate equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. She conducts a variety of research and related analysis on companies that fall into the consumer defensive and consumer cyclical sectors.

Before joining Morningstar in 2021, Na spent several months interning at a deal advisory group at KPMG Korea and a Chicago-based private equity firm, where she conducted various qualitative research on both public and private markets.

Na holds a bachelor's degree in finance, investment, and banking from the University of Wisconsin–Madison's Wisconsin School of Business.

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