A rebound for Home Depot and Lowe's is ‘still a ways off' even as rates ease, analysts say

Oppenheimer analysts assert that a significant recovery for Home Depot and Lowe's remains distant, despite recent interest rate easing. They argue that anticipated rate cuts will be gradual and insufficient to quickly thaw the housing market, citing persistent lags, a disconnect between current stock valuations and weak near-term trends, and the potential impact of tariffs on consumer discretionary spending. Additionally, a post-pandemic pull-forward in home renovation demand is expected to continue dampening new projects through 2025 and potentially into 2026.

Analysis

Oppenheimer analysts have issued a cautious outlook on Home Depot (HD) and Lowe's (LOW), asserting that a meaningful recovery is 'still a ways off' despite the Federal Reserve's recent interest rate cut. The core of their argument is that anticipated rate cuts will likely be too gradual to generate the 'oomph' needed to unlock a 'stubbornly stagnant domestic housing backdrop,' which is currently characterized by existing-home sales at multi-decade lows. Compounding this issue is a noted 'disconnect' between the retailers' current stock valuations and the weak near-term fundamentals. Furthermore, demand faces headwinds from a post-pandemic normalization, where a significant 'pull-forward' of renovation projects during COVID-19 has left many consumers unwilling to undertake new large-scale projects, an effect that could persist into 2025 or 2026. This is corroborated by Home Depot's own management, who cited 'softer engagement in larger discretionary projects.' Finally, tariffs remain a 'meaningful wildcard' that could pressure discretionary spending through broad price hikes, even as the companies are expected to manage direct input cost increases through their pricing power and domestic sourcing.

Key Decisions for Investors

• Investors should critically re-evaluate the current valuations of Home Depot and Lowe's, as Oppenheimer's analysis suggests a disconnect with the challenging near-term growth prospects.
• Monitor key housing market indicators, such as existing-home sales and home-builder confidence, as a sustained improvement in these metrics is a necessary catalyst for a fundamental rebound in the sector.
• Consider underweighting exposure to home improvement retail in the near-to-medium term, given the forecast for a protracted period of suppressed demand stemming from post-pandemic normalization, tariff risks, and a slow housing market recovery.