Here’s what drove Home Depot stock higher.
Home Depot (NYSE:HD) stock was up about 3% on Tuesday, even though the company missed on both revenue and earnings estimates.
What drove the leading home improvement retailer higher?
Even though Home Depot missed estimates, it still posted decent results. Revenue came in at $45.28 billion, which marked solid 4.9% year-over-year growth. It was just slightly below estimates of $45.3 billion.
Comparable store sales rose 1% overall, which was slightly below expectations of 1.2% growth. Comparable sales in the U.S. increased 1.4%, offsetting lower comp sales internationally, which were impacted negatively by foreign exchange rates.
Earnings were $6.0 billion, which was down 0.7% year-over-year. Meanwhile, earnings were $4.58 per share, down just 0.4% year-over-year. Adjusted earnings were $4.68 per share, up slightly from $4.67 in the same period of fiscal 2024. However, this fell short of estimates of $4.70 per share.
“Our second quarter results were in line with our expectations. The momentum that began in the back half of last year continued throughout the first half as customers engaged more broadly in smaller home improvement projects,” Ted Decker, chair, president and CEO, said “Our teams are executing at a high level and we continue to grow market share.”
So, while it was a miss on both counts, the numbers were almost a wash. But it appears that investors were looking to brighter days ahead.
Sales rise 3.3% in July, 13 stores still set to open
Home Depot stock has been rising over the past month, up nearly 10%. Year-to-date, the stock is up about 4.6% to $407 per share.
The resurgence may in part be driven by a strong final month of the quarter, as Home Depot saw comparable store sales rise 3.3% in July. Analysts at DA Davidson noted that July marked the best monthly comp of the year, reported the Fly.
“The momentum that began in the back half of last year continued throughout the first half as we saw our customers engage more broadly in smaller home improvement projects. In fact, performance the across the business was the strongest we’ve seen in over two years,” Decker said on the earnings call.
Home Depot maintained its guidance for the full fiscal year, which investors took as a positive, given the amount of economic uncertainty. Sales growth is targeted to increase 2.8% while comparable store sales growth is slated for 1% growth. In addition, 13 new stores are set to open.
In addition, the gross margin guidance is 33.4% with operating margin targeted at 13%. Earnings are estimated to decline approximately 3% from $14.91 per share in fiscal 2024 while adjusted earnings are projected to fall 2% from $15.24 per share.
This momentum could be accelerated with interest rate cuts in the second half of the year, as it would unlock more activity on the housing market and spur more remodeling projects. The prospect of lower interest rates is another catalyst for the rally.
Widespread analyst upgrades
On tariffs, Billy Bastick, executive vice president of merchandising at Home Depot said on the earnings call that 50% of the company’s products are sourced from the U.S. He added that while some pricing could be impacted by tariffs, it won’t be broad-based.
Analysts were definitely impressed with the results and the momentum. The aforementioned DA Davidson boosted its price target for Home Depot to $475 per share, while Jefferies raised it to $474. Truist bumped their price target for Home Depot up to $454 per share while Mizuho raised it to $450 per share.
Home Depot stock has a median price target of $432 per share, which would suggest 6% upside from the current price. But it may not include the four major raises on Tuesday.
If the price surges to $450 or $475 per share, that would suggest a return of 10% to 17% over the next 12 months.
Home Depot stock is not cheap, but it is not overly expensive either with a P/E ratio of 26. It also has a pretty good dividend at $2.30 per share with a yield of 2.33%. That may also be something that investors are attracted to.
