Wedbush analysts upgraded Home Depot (NYSE:HD) from Neutral to Outperform.
Despite weakened demand in 2023, due to factors like rising interest rates and declining existing home sales, analysts believe key drivers are bottoming or reversing, indicating stronger demand in 2024.
Wedbush anticipates home improvement spending to increase by at least low-single-digit levels year-over-year by the second half of 2024, with Home Depot positioned as a prime beneficiary.
“We expect HD’s Pro business segment to outperform DIY in a rebounding industry environment with healthy Pro and general employment, solid wage growth and homeowner spending power from continued home price appreciation. Further, HD’s building Complex Pro initiative should help it gain Pro market share,” analysts said.
The analysts hiked HD's stock price target by $50 to $380 per share. Shares are up 1% in pre-open, indicated at $349.50.
Wedbush's forecast for Home Depot includes a comp growth of +1% in 2024, slightly better than the industry and outperforming the -0.5% forecast for Lowe’s (NYSE:LOW). The broker also expects better margin performance for HD, with $500 million in permanent cost cuts contributing to increased operating margins year-over-year.
Wedbush forecasts HD's 2024 operating margins at 14.3% (versus consensus' 14.2%) and EPS of $15.85 (versus consensus $15.57). As the market stabilizes in late 2024 and 2025, Wedbush suggests that HD's mid to high-single-digit percentage EPS growth algorithm may be conservative.
“We expect modest multiple expansion on prospects for stronger earnings growth for this hardlines retail heavyweight as evidence of a cyclical inflection builds. Indeed, HD historically has materially outperformed the S&P 500 as interest rates decline, in anticipation of stronger fundamentals,” analysts concluded.