Home Depot Gains 1.2% on Strong Q3 & Outlook: Buy the Stock or Beware?

The Home Depot Inc. HD has risen 1.2% in the past week after reporting third-quarter fiscal 2024 results on Nov. 12, 2024. This reflects an outperformance compared with its industry peers, the broader sector and the S&P 500 index. The Building Products – Retail industry has grown 0.4% but the Retail-Wholesale sector has declined 1.9% in the past week. Meanwhile, the S&P 500 fell 2.1% since Nov. 12.Home Depot’s Price Performance Image Source: Zacks Investment Research The stock’s modest growth since its earnings release reflects mixed sentiments among investors following the release. Home Depot exceeded the Zacks Consensus Estimate for earnings per share (EPS) and revenues in third-quarter fiscal 2024. However, EPS declined year over year. While the company’s top line benefited from contributions of the recently completed acquisition of SRS Distribution Inc., its fiscal third-quarter results were impacted by two hurricanes.Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Despite the mixed results, the HD stock gained momentum on an optimistic sales and EPS view for fiscal 2024, driven by the year-to-date performance, expectations of hurricane restoration-related demand, an additional 53rd week, and the inclusion of SRS results. Additionally, the U.S. Federal Reserve’s recent interest rate reduction is expected to spur increased housing and home repair activities, aiding Home Depot’s performance.HD projects year-over-year sales growth of 4% for fiscal 2024 compared with a 2.5-3.5% increase mentioned earlier. The company’s sales guidance includes a $2.3-billion sales contribution from the 53rd week and $6.4 billion in incremental sales from SRS. Home Depot anticipates GAAP EPS to decline 2% year over year for fiscal 2024 compared with the prior stated 2-4% dip. HD expects adjusted earnings per share to fall 1% year over year versus the 1-3% deterioration mentioned earlier. The 53rd week is expected to contribute 30 cents per share for the fiscal year’s EPS.Overall, HD is confident about its initiatives to strengthen the business. It has been on track with its investments to craft the best inter-connected experience for customers, improving the pro wallet through its unique ecosystem of capabilities and expanding stores. It is also optimistic about the future of the home improvement industry and its ability to expand market share in this space.HD’s Estimates Reflect UptrendThe Zacks Consensus Estimate for Home Depot’s fiscal 2024 and 2025 EPS rose 0.6% and 0.4%, respectively, in the last seven days. The upward revisions in earnings estimates indicate that analysts are optimistic about the stock’s performance.For fiscal 2024, the Zacks Consensus Estimate for HD’s sales implies 3.8% year-over-year growth, with a 0.2% decline in EPS. The consensus mark for fiscal 2025 sales and earnings indicates 3.1% and 3.5% year-over-year growth, respectively. Image Source: Zacks Investment Research Is HD’s Overall Share Performance Just as Impressive?Home Depot shares have experienced volatility over the past year. A closer look at the stock’s one-year performance reveals that it has underperformed the industry in this period. Specifically, Home Depot's stock has risen 32.5% in the past year compared with the industry’s growth of 32.7% and the S&P 500’s 29.3% rally.Home Depot shares have outpaced its competitors, including Lowe’s Companies Inc. LOW, Builders FirstSource BLDR and Beacon Roofing BECN, which grew 31.8%, 31.2% and 21%, respectively, in the past year.The HD stock is trading at a 3.2% discount from its 52-week high of $421.56 reached on Oct. 15, 2024, suggesting more upside potential.Home Depot’s stock is trading above its 50-day and 200-day moving averages, signaling strong upward momentum and price stability. This technical strength indicates positive market sentiment and confidence in the company's financial health and prospects.HD Stock Trades Above 50 & 200-Day Moving Average Image Source: Zacks Investment Research Soft Discretionary Sales Still Pose Concerns for Home DepotHD's third-quarter fiscal 2024 sales performance benefitted from stronger engagement in some seasonal categories, driven by favorable weather conditions throughout the quarter and incremental sales from hurricanes. The quarter saw an approximately $200-million net contribution from hurricane-related sales, which boosted total company comparable sales (comps) by 55 basis points (bps) for the quarter and 120 bps for October.However, the higher interest rate environment and broader economic uncertainty continue to weigh on overall project demand. As a result, the company experienced weaker engagement in larger discretionary projects, such as kitchen and bath remodels, wherein customers typically rely on financing. Big-ticket transactions ($1,000 or more) were down 6.8% year over year, contributing to the softness in comps.Home Depot’s comps declined 1.3% for the third quarter of fiscal 2024, with a 1.2% drop in the United States. This decline was led by a reduction in customer transactions and the average ticket size. Customer transactions were down 0.2% year over year, while the average ticket decreased 0.8%.Given the ongoing macroeconomic uncertainty and persistent demand challenges, Home Depot has issued a cautious outlook for fiscal 2024 comps, forecasting a 2.5% year-over-year decline for the 52 weeks of fiscal 2024.HD’s Premium ValuationWith the stock steadily ticking up, the company is currently trading at a forward 12-month P/E multiple of 26.33X, exceeding the industry average of 23.92X and the S&P 500’s average of 22.13X. At current levels, Home Depot’s stock valuation looks expensive. The premium valuation indicates that investors have high expectations for Home Depot’s future performance and growth potential. Investors may be skeptical about buying the stock at these premium levels and may wait for a better entry point. Image Source: Zacks Investment Research How to Strategize Your HD Stock Investment?Home Depot’s third-quarter fiscal 2024 results reveal a resilient performance despite challenges such as high interest rates, soft big-ticket product demand and broader economic pressures. The company is well-positioned for long-term growth, supported by strong Pro customer sales and growth initiatives like the "One Home Depot" plan.While Home Depot’s strengths, an upbeat fiscal 2024 outlook, and positive estimate revisions inspire investor optimism, caution is advised. The stock's premium valuation and prevailing headwinds call for a thorough evaluation of recent developments before making investment decisions. For current shareholders, holding onto this Zacks Rank #3 (Hold) stock may prove advantageous in the long term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent.Thousands have taken advantage of this opportunity. Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators,and more, that closed 228 positions with double- and triple-digit gains in 2023 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Lowe's Companies, Inc. (LOW): Free Stock Analysis Report The Home Depot, Inc. (HD): Free Stock Analysis Report Beacon Roofing Supply, Inc. (BECN): Free Stock Analysis Report Builders FirstSource, Inc. (BLDR): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks