Stock Analysis & Ideas

Home Depot: Recovering From Recent Weakness

When a stock sells off, buying the dip can be a rather binary gamble. Either the stock is oversold and could bounce, or the decline is justified and the stock is fundamentally impacted. In the case of The Home Depot, Inc. (HD), many analysts see it as the former. The home improvement retailer recently posted mixed earnings results, and coupled with an unfavorable consumer retail report, saw its shares sell off more than 8% on Tuesday.  

The fact that the broader market sunk lower along with news of an impending Russian invasion into Ukraine didn’t help matters, either.  

Now that the dust has cleared, bullish hypotheses are forming. One of which comes from Jonathan Matuszewski of Jefferies Group, who wrote that investors should capitalize on the recent “overdone” weakness. While he admits that “some investors are getting ahead of a potential domino effect where inflation could impact unit velocity more broadly,” he does not believe the selloff is reflective of the preceding earnings call.  

Matuszewski rated the stock a Buy and lowered his price target to $420 from $455. This new target now represents 12-month upside potential of 32.84%.

Regarding the near-term performance of the company, the four-star analyst noted “pre-focused initiatives, enhanced e-Comm, optimized labor, and services” as key drivers. In the long-term, he anticipates an easing supply chain to boost already strong leadership in the industry.  

The Home Depot opened 400 new stores last year and has more planned and on the way. It is experiencing a higher rate of professional business than from its DIY consumers, which bolstered the stock throughout the COVID-19 pandemic. While individuals were stuck at home, many took to improving their living and working spaces by shopping at HD.  

Moreover, a millennial generation moving toward household formation, a high-flying housing market, and individuals with an elevated emotional connection to their homes currently serve as positive macro trends for The Home Depot.  

On TipRanks, HD has a Strong Buy analyst consensus rating based on 13 Buy and 4 Hold ratings. The average Home Depot price target is $393.21, reflecting 12-month upside potential of 27.48%.

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