Should You Hold Home Depot(HD)? - InvestingChannel

Should You Hold Home Depot(HD)?

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Proprietary Data Insights

Financial Pros’ Top Home Improvement Stock Searches in the Last Month

#1HDHome Depot54
#3HVTHaverty Furniture2
#4LLLumber Liquidators1
#5FNDFloor & Decor1
#ad Diversify Your Portfolio: Beyond Stocks

Can Home Depot Turn Things Around?

With home prices at record highs, you’d think people would want to upgrade their properties to extract as much value as possible.

Yet, Home Depot (HD)’s latest quarterly results say the exact opposite.

High interest rates seem to be hampering large-scale expenditures while general consumer spending pulls back.

That set up the retailer’s first year-over-year (YoY) revenue decline in 2023 since 2009.

Despite a lack of home inventory, professional builders aren’t picking up the slack either.

That’s left many to wonder whether the stock’s almost 20% slide in the last three months is only the start.

Home Depot’s Business

Operating more than 2,300 stores across North America, Home Depot is the largest company in its sector globally.

It serves a wide array of customers with products ranging from simple screws to high-end appliances and garden supplies. 

Here’s how Home Depot keeps its financial gears turning:


  • Retail (60% of total revenues) – This includes everything from in-store sales to online purchases, covering a broad spectrum of home improvement items.
  • Professional Services (25% of total revenues) – Aimed at the pros, this segment offers specialized services like installations and tool rentals.
  • Online Sales (15% of total revenues) – Highlighting the shift towards digital, this segment captures all e-commerce transactions, an area Home Depot is keenly expanding.

Despite experiencing a slight dip in sales recently due to a delayed spring season and a downturn in large project spending, Home Depot remains positive about its strategies and future. 

Its current strategic vision includes:

  • Enhancing the interconnected retail experience by integrating its online and physical stores to create a seamless shopping journey. 
  • Expanding the Pro business to deepen its relationships with professional contractors through its Pro Ecosystem, which offers specialized services and products. 

Home Depot also recently announced plans to acquire SRS Distribution.

SRS Distribution excels in serving the roofing, pool, and landscape industries—areas where Home Depot has seen growth potential.



Source: Stock Analysis

Spring started late this year, pushing back traditional sales of outdoor and garden products in Q1. At the same time, overall consumer spending declined, as we’ve seen in other discretionary categories like apparel.

This took net sales down 2.3% YoY for the quarter, driven by a 1.0% decline in customer transactions and a 1.3% decline in average ticket prices.

On a per-square-foot basis, sales were down 3.4%.

Yet, the company has maintained gross margins even as operating and profit margins declined slightly.

The good news is free cash flow margin improved YoY and continues to get better.

Debt is a bit high, sitting at $52 billion compared to $29 billion in 2019.

We’re not thrilled about this since it was used to finance share buybacks and dividends.



Source: Seeking Alpha

Home Depot’s current valuation based on P/E and price-to-cash flow puts it in line with its 5-year average.

That’s not great, considering the uncertain outlook.

Lowe’s (LOW) trades at a better ratio on both counts. However, it’s facing the same consumer softness as Home Depot.



Source: Seeking Alpha

Across the industry, sales are either flat or down YoY, with the forward outlook about the same.

Even high end specialty stores like Haverty (HVT) and Floor & Decor (FND) aren’t forecasting banner years in 2024.



Source: Seeking Alpha

Despite its size, Home Depot runs gross margins similar to Lowe’s.

However, both companies boast solid returns on assets and total capital.

Our Opinion 5/10

We’re not excited about Home Depot or Lowe’s.

Both face lower consumer spending and heavy debt loads in a high interest rate environment.

Housing supply remains constrained, which we see as the largest impediment. Until that changes, we don’t expect either company to break out of the doldrums.

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