On Monday, Piper Sandler adjusted its outlook on Home Depot (NYSE:NYSE:HD) shares, increasing the stock's price target to $455 from the previous $387 while maintaining an Overweight rating. The revision comes amid signs of rising cash-out refinancing activity, which has been bolstered by a recent decline in the 30-year mortgage rate.
According to the firm, September saw a significant year-over-year surge in total refinance applications, averaging a 136% increase as 30-year mortgage rates fell from 6.35% to 6.08%. In the second quarter, when mortgage rates averaged 7.0%, the available cash-out refinance dollars were up 7% year-over-year. The average mortgage holder now has approximately $214,000 in equity that could potentially be tapped into.
The analyst noted that while big-ticket spending in home improvement has experienced a downturn in 2024, the sector is expected to see considerable growth in 2025 if the downward trend in mortgage rates continues. This anticipated improvement in the home improvement market's fundamentals has led to the raised price targets for Home Depot, as well as for Lowe's (Overweight-rated) and Floor & Decor Holdings (Neutral-rated).
Home Depot's stock adjustment reflects the analyst's optimism about the potential for increased consumer spending in home improvement, driven by easier access to refinancing options and the consequent availability of funds for homeowners. The firm's analysis suggests that as the financial environment becomes more favorable, there is a substantial opportunity for growth in the sector.
In other recent news, Home Depot has declared a quarterly cash dividend of $2.25 per share, marking the 150th consecutive quarter of dividend distribution. Concurrently, Lowe's Companies Inc (NYSE:LOW). revised its annual profit and sales expectations downward due to a persistent slump in home improvement demand.
Meanwhile, Loop Capital maintained a Hold rating on Home Depot shares but raised the price target from $330.00 to $360.00, reflecting a revised growth outlook for the recently acquired SRS Distribution. TD Cowen also maintained a Hold stance on Home Depot shares, with a consistent price target of $420.00, despite the company's reduced full-year guidance.
These are some of the latest developments involving major US homebuilders and home improvement retailers. The Federal Reserve's recent interest rate cuts are expected to stimulate the housing market by reducing mortgage rates, which could lead to increased homebuilding activity.
InvestingPro Insights
The recent price target increase for Home Depot aligns with several key metrics and insights from InvestingPro. The company's market capitalization stands at an impressive $396.85 billion, underscoring its position as a dominant player in the home improvement sector. This is further supported by an InvestingPro Tip highlighting Home Depot as a "prominent player in the Specialty Retail industry."
Home Depot's financial health appears robust, with a revenue of $152.09 billion over the last twelve months as of Q2 2023. The company's profitability is evident, with an InvestingPro Tip noting that it has been "profitable over the last twelve months." This is reflected in its P/E ratio of 26.79, suggesting investors are willing to pay a premium for its shares.
Notably, Home Depot has demonstrated a strong commitment to shareholder returns. An InvestingPro Tip reveals that the company "has raised its dividend for 14 consecutive years" and "has maintained dividend payments for 38 consecutive years." This consistent dividend growth, coupled with a current dividend yield of 2.25%, may be particularly attractive to investors seeking stable income in the current economic climate.
The stock's recent performance has been impressive, with a 35.66% total return over the past year and a 16.77% return in the last three months. This aligns with another InvestingPro Tip indicating a "strong return over the last three months." Additionally, the stock is trading near its 52-week high, with its current price at 99.01% of that level.
For investors considering Home Depot, it's worth noting that InvestingPro offers 11 additional tips, providing a more comprehensive analysis of the company's financial health and market position.
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