The future looks bright for Home Depot, as one Wall Street team argues in their recent report. The team of analysts at Wedbush, led by Seth Basham, have upgraded Home Depot stock from Neutral to Outperform. They have also raised the price target for the stock to $380, up from $330.
In premarket trading, shares of Home Depot rose by 1.2% to reach $350.50.
Despite a weakened demand for home improvement retail in 2023, due to factors such as spiking interest rates, declining existing-home sales, consumer spending shifting to services, and the unwinding of pulled-forward demand caused by the pandemic, the Wedbush analysts believe that many of these key drivers are now bottoming out or even reversing. As a result, they expect stronger demand in 2024.
In a separate report, the analyst team shares their expectations that home-improvement customers will increase their spending by at least a low-single-digit percentage year-over-year by the second half of 2024. They see Home Depot as a prime beneficiary of this trend.
Moreover, Home Depot is predicted to outperform its rival Lowe’s in several areas, further solidifying its position in the market.
Home Depot has the edge over Lowe’s in the pro industry segment
According to analysts, Home Depot holds an advantage over Lowe’s in the pro industry segment. With about 45% exposure to the Pro customer, compared to Lowe’s 25%, Home Depot is positioned for outperformance. Furthermore, Home Depot is expected to continue to outcompete Lowe’s in the DIY (do-it-yourself) market. The analysts also anticipate better margin performance for Home Depot.
Growing stock performance
Over the past 12 months, Home Depot stock has seen a gain of 5.2%, while Lowe’s shares have risen by 4.0%. Although both companies have trailed behind the broader market, which experienced a 20% rise in the S&P 500 index, they have still shown positive growth.
Potential benefits from Federal Reserve interest-rate cuts
With the economy approaching a potential soft landing, investors are anticipating interest-rate cuts from the Federal Reserve. This scenario is expected to benefit Home Depot, as historically the company has performed well as interest rates decline. Analysts believe that Home Depot’s earnings growth guidance may be conservative, prompting them to increase their price target.
Strong performance and adjusted guidance
In November, Home Depot surpassed expectations for third-quarter earnings. However, the company did narrow its full-year guidance. Despite this adjustment, analysts remain confident in Home Depot’s ability to deliver stronger fundamentals.