Home Depot Earnings: Stable Demand Exit Set to Persist in 2025, but Turnover is Still Weak

Key Morningstar Metrics for Home Depot

• Fair Value Estimate: $292.00
• Morningstar Rating: ★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Home Depot’s Earnings

Home Depot HD 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 fair value estimate of $292 per share and see the stock 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.

As such, with another year of high financing costs pressuring big remodel projects, the firm offered its inaugural 2025 outlook, which included sales growth of 2.8%, comparable sales growth of 1%, and an adjusted operating margin of 13.4%. We see near-term sales gains stemming from the pro side, as new capabilities should continue to result in increased engagement and incremental sales. Continued integration of SRS allows for further product cross-selling and expansion into new markets, helping uplift demand for more complex jobs. Furthermore, the firm’s continuous improvement in delivery, customer insights, and digital options allows for a better consumer experience that attracts both pro and DIY customers (which we think supported Home Depot’s 0.9% growth in big-ticket transactions in the quarter).

In the longer term, as the housing market normalizes, we forecast 4% average top-line growth and operating margins that return to its 10-year historical average levels, at around 14%, as cost leverage resumes with the achievement of comparable sales above 3%.