The U.S. housing market might be thriving, but some experts are bearish on one of its chief beneficiaries in the retail space. One recent sign of this was a mid-February recommendation downgrade on Home Depot (HD 0.03%) from an international banking group tracking the stock.
That bank's price target of $323 is down quite some distance from its recent trading level around $378, which is just 1.5% off all-time highs. Here's a look at whether it might be worthwhile to sell at that price.
HSBC downgrades Home Depot but keeps its price target intact
HSBC Global Research's Daniela Breithauer downshifted her Home Depot recommendation to reduce (sell, in other words) from her former tag of hold. Somewhat atypically, in doing so the pundit maintained her price target, which was and remains $323 per share.
As is often the case behind significant analyst adjustments like recommendation changes, the move came in the wake of an earnings report. A day after Home Depot unveiled its numbers for both the fourth quarter and the entirety of 2023, Breithauer pulled the lever on the downgrade.
She is most concerned with cost pressure and its damaging effect on the fundamentals. She wrote, "Operating cost inflation is growing faster than sales, putting pressure on margins and overall profitability."
Bearing that firmly in mind, she lowered her estimates for both full-year 2025 and 2026 earnings. Additionally, Breithauer feels that since the company recently traded at a 10% premium to its forward P/E averaged across a 10-year period, it was overpriced at current levels.
NYSE: HD
Key Data Points
Weak guidance for 2024
Home Depot's own forecasts don't really inspire confidence. In that earnings report, Home Depot guided for 1% annual growth in both net sales and net income for the full year 2024. And, as the HSBC analyst pointed out, it's currently priced as if it has notably more growth in store. Considering that, I feel Home Depot would be a good stock to sell at around the $380 per share mark.
