Shares of home improvement retailer Home Depot (NYSE:HD) closed 8.9% lower on Tuesday despite the company delivering better-than-expected Q4 results. The selloff indicates that investors were expecting more from the company.
Nevertheless, Home Depot said that it expects FY22 comparable sales and overall revenues to improve, which is encouraging given the concerns around inflation and the ongoing supply-chain challenges. However, it expects its operating margins to stay flat in 2022.
While Wells Fargo analyst Zachary Fadem termed the selloff as “harsh,” he is not surprised as market participants are unforgiving these days and punishing stocks even with the slightest hint of negativity.
Fadem added that Home Depot’s 2022 guidance is “favorable, and assumes the current ‘run-rate of dollar demand’ continues despite underlying concerns around inflation, rising rates and stimulus-impacted compares.”
The analyst remains optimistic about HD’s positive sales growth forecast and stable margins and maintains a Buy rating on the stock. Citing Home Depot’s valuation, Fadem stated that HD stock trades at 19.5 times his FY22 EPS estimate, and he likes “the setup from here.”
What’s Ahead?
The company stated that the housing market remains supportive of home improvements, which will be a benefit. Also, a lot would depend on how consumer spending evolves as the year progresses. However, investors should note that consumer spending could normalize compared to 2020 and 2021 levels. Moreover, macroeconomic headwinds pose challenges in the near term.
Nonetheless, Home Depot stock scores a “Perfect 10” on TipRanks’ Smart Score system, implying that it could outperform the market averages.
Further, hedge funds and investors holding portfolios on TipRanks maintain a positive outlook on HD stock.
TipRanks’ Hedge Fund Trading Activity tool shows that hedge funds bought 157.8K HD shares during the last quarter. Meanwhile, 16.7% of investors added HD stock to their portfolios in the last 30 days.
Wall Street’s Take
Wall Street is bullish on HD stock. Its Strong Buy consensus rating is based on 11 Buy and 2 Hold recommendations. Further, the average Home Depot price target of $422 implies 33.5% upside potential to current levels.
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