Home Depot Q3 Earnings: Can Improving Financials Beat Interest Rates, Inflation Concerns?

Home Depot Inc HD will be reporting its third-quarter earnings on Nov. 14 before market hours.

The home improvement retailer has a history of beating EPS estimates for the last reported 12 quarters. Consensus analyst estimates for Home Depot stand at $3.58 in EPS and $35.66 billion in revenue.

Home Depot is kicking off a spree of leading retailers such as Lowe’s Companies Inc LOW, Target Corp TGT, Walmart Inc WMT, Macy’s Inc M also reporting earnings this week. Analysts hope any estimate beats to provide the necessary boost to dipping consumer confidence in the U.S.

Here's what analysts will be focusing on, and how the stock currently compares against Wall Street estimates.

Business & Fundamentals: Home Depot has a massive customer base. The company’s financials have shown remarkable improvement over the past three reported quarters. However, as an investment, the stock can be affected by the number of macroeconomic variables at play.

Higher interest rates, inflation concerns and a shift of consumer spending towards services remain key near-term risks. High mortgage rates could be another headwind for the stock in the near term, as rates impact home buying activity, hence, demand for home improvement products.

Related: Housing Market Freezes As Mortgage Rates Reach New Millennium Peaks

Q3 Analysts' Focus: Relatively stable interest rates have awarded a solid winning streak to the retail space, of late. But, the analyst focus from this earnings report would be on the impact of rates and inflation on its customer base.

“We continue to believe the underlying drivers of the home improvement category remain intact, but we believe it is appropriate to take a more cautious view of 2024 with the headwind from the elevated rate environment,” noted analyst W. Andrew Carter from Stifel in a preview note.

Carter expects Home Depot to report a 3% decline in FY23 comparable sales, as home improvement retail spending has been underperforming personal consumption expenditures throughout 2023.

Current tailwinds for Home Depot’s business can be seen in an undersupplied market for homes, current stock of aging homes and a general rise in the average size of houses, as noted by RBC Capital analyst Steven Shemesh, who initiated coverage on the stock recently.

Ratings & Consensus Estimates: Consensus price target for the stock stands at $319.23. Analysts, on average, rate the stock a Buy.

Stifel has a Hold rating for Home Depot stock, and a reduced target price of $306 from $350 earlier. Recent analyst reviews have largely lowered their price targets on Home Depot stock, which can be seen here.

HD Price Action: Home Depot stock traded $288.54 at the time of publication on Monday. The stock has been on a rollercoaster along with interest rates so far this year and is down over 8.5% YTD.

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