Analysts at financial companies including HSBC, UBS, and TD Cowen have been lowering their price targets for Home Depot (HD 1.73%) following the company's recent quarterly report, and Evercore ISI is no exception. Its analyst lowered the price target on the stock to $390 from $420. Still, the exciting part is that he maintained an outperform rating on the stock, and the new target represents a 13% premium to the price as I'm writing this.
The bulls' case for Home Depot
As with many other housing-related stocks, the optimistic view on Home Depot is that the current weakness in the housing and home improvement market is temporary and caused by relatively high interest rates, which will come down soon enough. As such, Home Depot's earnings are depressed in 2024 and will bounce back in line with an eventual recovery.
The first part of the argument is valid. After turning negative in the fourth quarter, Home Depot's comparable sales growth continued to decline in Q1, albeit at a lower rate of decline than in the two previous quarters.
However, the second part of the argument is open to debate, as it's far from clear that interest rates will come down, as there may be structural issues in the economy (such as ongoing trade conflicts) creating sticky inflation.
Chart by author. Data source: Home Depot.
The situation bears watching
While history suggests rates will come down, and the home improvement market will recover in due course, there's no guarantee that will be the case here. We live in a time of heightened geopolitical tensions whereby the free trade necessary to improve productivity and reduce inflation doesn't appear to be a political priority.
As such, there's likely to be an ongoing debate about interest rate movements, the housing market, and, in turn, Home Depot stock. Even the optimists among us need to monitor events closely.
