Is Home Depot Stock A Buy After Q4 Earnings?
Note: Home Depot FY’24 ended on February 2, 2025.
Home Depot stock (NYSE: HD) shares rose 2.8% to $393 on February 25, outperforming the S&P 500’s 0.5% decline. The company’s Q4 results beat analyst forecasts, defying a tough market backdrop marked by rising interest rates and elevated housing costs. Notably, Home Depot reported a 14% year-over-year (y-o-y) increase in net sales to $39.7 billion, with GAAP earnings per share rising 7% to $3.02. The quarterly performance was partially boosted by an extra week, which contributed $2.5 billion in sales, excluded from comparable sales metrics. The company’s comp sales grew 0.8% in Q4, ending an eight-quarter decline, with U.S. store comps up 1.3%. While this marks a positive step, full-year comparable sales declined 1.8% for FY 2024, reflecting ongoing market challenges.
Economic uncertainty has prompted consumer caution, with average transaction values dipping to $89.31 in FY 2024, suggesting that customers are tightening their budgets. It should be noted that the company’s operating margin fell to 13.5% in FY’24 compared to 14.2% in FY’23, due to increased supply chain investments to facilitate its online orders.
Home Depot has faced challenges in recent years, as rising interest rates have slowed the housing market and made home improvement projects more costly, reducing customer incentives to visit its stores. The Federal Reserve continued to raise interest rates aggressively since 2022 to fight inflation (until September 2024 when it announced its three consecutive rate cuts). Consequently, this has translated to higher mortgage rates, which in turn suppressed home sales. After hitting a 2022 high mortgage rate of 7.08% in November, rates started trending down. Currently, the 30-year fixed-rate mortgage averaged 6.85% as of 20th February, slightly down from 6.98% the year before.
For the full year ahead, Home Depot expects total sales to grow by 2.8% and comparable sales to increase by about 1%. Management is calling for continued pressure on profitability, with an operating margin of 13% for the full year. We have revised HD’s Valuation to $399 per share, based on a $15.37 expected EPS and a 25.9x P/E multiple for the fiscal year 2025 – almost in line with the current market price. We forecast HD’s Revenues to be $164 billion for the fiscal year 2025, up 3% y-o-y.
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