- Home Depot’s Q1 sales and profits fell due to poor weather conditions and falling lumber prices;
- Despite the lower earnings, investors still have confidence in Home Depot, and the stock price rose 1.33% after the earnings report;
- Analysts are optimistic about Home Depot’s long-term growth potential.
Investing.com – The long-tail impact of the pandemic ultimately took its toll on home improvement retail giant Home Depot (NYSE: ).
According to the latest data, Home Depot’s Q1 revenue was US$37.3 billion, a decrease of 4.2% from the same period last year; similarly, the net profit in the first quarter was US$3.9 billion, which was also a decrease from the US$4.2 billion net profit reported in the same period last year. Also, while earnings per share increased slightly from the prior period to $3.82, this was also down from last year’s EPS of $4.09.
In the company’s results statement, company executives acknowledged that poor weather conditions and falling lumber prices contributed to the quarterly earnings miss. However, the company’s chief executive, Ted Decker, remained confident in the mid- to long-term prospects of the home improvement industry, stressing that despite the uncertainty in the short-term environment, the company remained committed to increasing its market share. Home Depot expects sales to contract by 2-5% compared to the previous year, and expects earnings per share to decline by 7%-13% compared to 2022.
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So, what does the future hold for Home Depot?
Let’s start with Home Depot’s stock price reaction to its earnings numbers, which rose 1.33% despite the weaker-than-expected earnings numbers, showing that investors still have confidence in the stock.
However, it is worth noting that their revenue and EPS are relatively higher compared to the fourth quarter of 2022. Shares are down nearly 7 percent, below $300, after last quarter’s decline. Here’s how the company’s share price reacted to previous earnings, a key stat from InvestingPro:
(The impact of HD performance on stock prices, from InvestingPro)
According to InvestingPro, analysts forecast Home Depot’s revenue and earnings per share to decline 9% in the year ahead, in line with the company’s expectations. However, looking to 2025 and beyond, analysts are increasingly optimistic, predicting long-term potential EPS growth of $28 per year.
(HD revenue and EPS forecasts, via InvestingPro)
Likewise, analysts predict that Home Depot’s revenue could drop nearly 3% this year. However, they expect steady revenue growth from 2025 onwards.
(HD revenue and EPS forecasts, via InvestingPro)
Against this backdrop, the fair value calculated by InvestingPro using an average of 15 financial models currently stands at $308. On the other hand, Home Depot stock is trading at $292 today, within its fair value range. It should be noted that 31 analysts estimated a price target of $318, which appears to exceed that ratio.
(HD fair value forecast, from InvestingPro)
Using InvestingPro to assess a company’s financial health, the strongest criterion is profitability, scoring a 4 out of 5. While the company’s cash flow and growth are considered stable, its price momentum has weakened and the company’s relative value is seen as the weakest point.
(HD financial health data, from InvestingPro)
The stock is down 7% since the start of the year and is currently trading around $292. Due to price declines since the beginning of the year, Home Depot’s performance is negatively differentiated compared to the industry average and .
(HD price chart, from InvestingPro)
It’s worth noting that the home improvement industry is currently experiencing short-term uncertainty — the impact of high interest rates on resale home sales is causing a slowdown in demand for home remodeling. Also, while the U.S. is declining, it remains above target. That has raised concerns that consumers may be prioritizing basic needs over home remodeling and other discretionary spending.
However, despite these challenges, Home Depot executives remain positive about the long-term outlook. They believe that limited housing supply, combined with aging housing stock, will ultimately drive budget and renovation needs, creating opportunities for the company going forward.
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(Translation: Li Shanwen)