Home Depot Prospects Hampered By Housing Market Concerns

Home Depot Inc. HD is a good retailer for people doing DIY home improvement projects, with a strong management team and a good outlook for improving sales, analysts say. But a key question is starting to emerge: are there enough fixer-upper jobs out there in what may be a slowing housing market?

Home Depot reported fourth-quarter results Tuesday that missed Street estimates on sales, along with weaker-than-expected guidance.

The Analysts

Wedbush analyst Seth Basham is Neutral on Home Depot with price target of $190.

KeyBanc Capital Markets analyst Bradley B. Thomas has Home Depot rated Sector Weight with no price target.

Credit Suisse analyst Seth Sigman kept a Neutral rating on the stock but lowered his target price to $192 from $194.

Wedbush

Home Depot’s earnings miss and guidance for 2019 point to a “moderating home improvement market,” Sigman noted, though that’s partly due to unusually wet weather in December.

Still, there's likely slowing demand beyond the weather issue, he wrote in a note. Home Depot's guidance for 5 percent growth in comparable store sales also implies a slowdown, but is “healthy,” Sigman said.

“All in, we look favorably on HD’s proactive efforts to maintain its leadership position and believe that execution remains solid, but a slowing housing and macro environment creates less upside bias than normal to the outlook, leaving us sidelined on HD,” wrote Sigman.

KeyBanc

KeyBanc’s Thomas also is “increasingly concerned about slowing growth for home-related retailing as we look to 2019.”

Thomas noted consumer confidence is high enough, and employment strong enough, that people should have comfort with taking on home renovation projects. But housing turnover trends are slowing – meaning there may be fewer people rehabbing homes they’re about to sell or just bought. And macroeconomic indicators lead to concerns.

“Although company-specific initiatives remain strong, we remain cautious on slowing growth in the housing market for 2019,” Thomas wrote in a note. “From a competitive position, we believe HD is at lower risk from e-commerce than most … and has the scale to make many of the necessary investments for future growth.”

Credit Suisse

Sigman said Credit Suisse struggles to see meaningful upside to Home Depot stock over the medium term.

“We come away from (fourth quarter earnings) still constructive on many of the factors within HD's control, but concerned that the external indicators that have historically mattered continue to moderate,” he wrote in a note to investors.

Price Action

After falling in Tuesday's session, Home Depot's stock was down another 2.4 percent to $183.71 per share at time of publication Wednesday.

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