Home Depot Posts Q3 Earnings Miss, But Accelerating Comp Sales Turns Analyst Bullish

Home Depot's Q1 adjusted EPS of $3.56 missed the consensus estimate of $3.59, with comparable sales down 0.3% overall, although sales trends improved throughout the quarter, with U.S. comps accelerating to nearly 2.5% in April excluding the Easter shift. Analysts at Stifel upgraded HD to Buy with a $425 price target, citing potential upside to full-year guidance, while Guggenheim reaffirmed a Buy rating and $450 target, noting strength in big-ticket transactions; RBC Capital Markets maintained a Sector Perform rating with a $399 target. Home Depot also plans to diversify its international sourcing to reduce reliance on any single country outside the U.S.

Analysis

Home Depot (HD) reported a marginal miss on Q1 adjusted earnings per share, delivering $3.56 against a consensus of $3.59, with overall comparable sales declining by 0.3%. However, a significant positive development was the accelerating momentum in comparable sales throughout the quarter, transitioning from a 3.6% decline in February to a 0.6% increase in March and a 1.1% rise in April for the total company. Specifically, U.S. comparable sales grew 1.8% in April, with management indicating this figure would have approached 2.5% when adjusted for the Easter timing shift, a trend supported by a 70 bps FX headwind and a 30 bps commodity tailwind influencing overall results. This improving trend, coupled with a second consecutive quarterly increase in big-ticket transactions (over $1,000) despite ongoing pressure on larger discretionary projects, underpins some analyst optimism. Stifel upgraded HD to Buy with a $425 price target, anticipating upside to the reiterated full-year guidance and highlighting Home Depot's potential to disproportionately benefit from an anticipated recovery in the home improvement sector. Guggenheim, reaffirming a Buy rating and a $450 target, noted the Q1 results were broadly in line and that the accelerating comps reduce the risk of another negative comp year in 2025. Conversely, RBC Capital Markets maintained a Sector Perform rating with a $399 target. The company also outlined a strategic initiative to diversify its international sourcing over the next 12 months, aiming to reduce reliance on any single country outside the U.S. for more than 10% of its purchases. Despite these positive undercurrents and analyst upgrades, the initial stock reaction was a modest decline of 0.96% to $373.43, reflecting a market digesting mixed signals.

Key Decisions for Investors

• Investors should weigh the Q1 EPS miss against the significant positive momentum in comparable sales, particularly the U.S. April acceleration to nearly 2.5% (adjusted), as a key indicator of underlying demand strength.
• Closely monitor Home Depot's ability to meet or exceed its reiterated full-year guidance, as achieving this will be critical for validating bullish analyst outlooks and supporting the thesis of a broader home improvement sector recovery.
• Consider the company's strategic sourcing diversification as a prudent long-term de-risking initiative for supply chain stability, though its near-term financial impact may be limited.
• Acknowledge the varied analyst opinions, ranging from Sector Perform to Buy with price targets between $399 and $450, suggesting a careful assessment of individual conviction in the recovery narrative against the backdrop of continued pressure on discretionary projects.