Home Depot (NYSE:HD) stock seems to be cooling off this March, as the latest quarter (a mild beat, even as sales slipped) was held back by ongoing macro headwinds and the smaller scale of home improvement projects. Despite these lingering headwinds, the firm has invested a great deal in improving things within its control (think operating efficiencies). Once the economic tides turn back in Home Depot’s favor, expect such improvements to set the stage for HD stock’s much-awaited breakout moment.
Until then, investors must exercise patience. In the meantime, I view HD stock as an intriguing, albeit untimely, long-term play for value investors seeking exposure to one of the most dominant forces in home improvement. For now, I am staying bullish on HD stock at its reasonable multiple.
At writing, HD shares trade at 24.8 times trailing price-to-earnings, only slightly higher than the home improvement retail industry average of 22.9 times.
Given Home Depot’s track record of using its size ($376 billion market cap) to its advantage, I’d argue the slight premium is more than worth the price of admission, especially if you’re a bull on home improvement and the long-lived secular tailwinds that could power sales on the other side of today’s lingering headwinds.
Perhaps lower interest rates could be the catalyst that allows mortgage holders greater flexibility to rebuild that backyard deck or tear down the wall between the dining room and the kitchen.
Lower Rates Could Spark Home Improvement Spending. Just Don’t Time the Fed
For now, though, the Federal Reserve looks to be standing pat as it seeks the perfect time to perform its first rate hike (likely the first of many). Still, don’t get your hopes up for a June rate cut, even if inflation backs off further from here while the U.S. economy avoids a recession. Some pundits seem to be counting June out following the latest round of inflation data, which still seems a tad on the hot side, with the consumer price index rising 3.2% for February.
Whether the cuts come in early summer or autumn, I see rate relief on the way, and that’s a boon for investors with a time horizon beyond two years. In the case of Home Depot, it seems equipped to ride things out as it plays the long game to better prepare itself for the next home renovation boom.
Lately, the artificial intelligence (AI) boom has helped lift many firms that have embraced the technology. Home Depot may be perceived as a low-tech company, but it’s also been tapping into the power of AI to help its business run a bit smoother.
Home Depot Has a Sidekick: Why AI Could be Key to Efficiency Gains
The company’s Sidekick app leverages machine learning and computer vision to help its in-store staff be more productive. Perhaps the biggest reason to head on over to the local Home Depot is the expertise they offer to their customers, whether they’re business clients or those just looking to take on a DIY project for the very first time.
With Sidekick, Home Depot’s expert associates will likely be more efficient in helping customers while also ensuring shelves are always stocked. Undoubtedly, there’s no bigger time sink for prospective customers than empty shelves, which can cause some to search the store for staff or take their business to the local competitor down the street.
Though embracing AI tech can yield efficiency gains, it’s the customer satisfaction factor that I believe will give the home improvement giant more of an edge over its rivals over the coming years. As we head deeper into the AI age, sidekicks, copilots, and everything in between stand to make many aspects of a business that much more efficient.
When it comes to Home Depot, investors can sleep comfortably at night knowing the firm has been actively investing in innovation. Whether we’re talking about Sidekick or the firm’s $150 million venture capital fund, which was launched around two years ago, it’s clear that Home Depot is an innovator at heart. And with that, I believe shares of HD deserve a slight premium over the peer group, at least in my humble opinion.
Is HD Stock a Buy, According to Analysts?
On TipRanks, HD stock comes in as a Strong Buy. Out of 26 analyst ratings, there are 17 Buys, seven Holds, and two Sell recommendations. The average HD stock price target is $378.60, implying downside potential of 0.2%. Analyst price targets range from a low of $310.00 per share to a high of $440.00 per share.
The Bottom Line on Home Depot Stock
Home Depot may be an old-school Dow Jones Industrial Average (DJIA) retail stock that one wouldn’t expect to have skin in the AI game. Though AI can’t push homeowners to start renovating again (rates could, however), I view the firm’s willingness to innovate as a massive driver that could help the firm outpace its rivals in the home improvement scene.
While HD stock’s big breakout moment may still be a year (or more) away, patient investors have many reasons to stay as macro conditions normalize and Home Depot drives its own efficiencies forward.
