Home Depot Earnings: Static Housing Market and Rising Distribution Sales Mix Drag on Results

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 Home Depot’s Earnings

Home Depot’s HD 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 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.