A new analyst call on Home Depot reflects our feeling on what to do with the stock

Melius Research initiated coverage of Home Depot with a buy rating and a $397-per-share price target, citing a potential recovery in existing-home sales and repair/remodel demand as the mortgage-rate lock-in effect eases. The firm said homeowners with sub-4% mortgages fell to 50% from 61% three years ago, while those with 6%+ mortgages rose to 22% from 10%; it expects the trend to support demand over the next 2–3 years. Home Depot trades at about 18 times forward earnings versus its five-year average of about 24 times, and is 4.5% above its five-year closing low and about 34% below its December 2024 record close; the article frames the opportunity as contrarian, with housing and rate risks still present.

Analysis

The key underwriting question is whether more listings produce incremental repair-and-remodel spending—or mainly redistribute transactions. Turnover can help Home Depot (HD) and Lowe’s (LOW) through move-in projects and deferred maintenance, but a home sale does not guarantee a renovation: sellers may spend less, buyers may prioritize affordability, and falling home values could weaken the wealth effect. The thesis therefore needs confirmation in retailer transaction trends and project mix, not just rising listings.

There is also a relative-value wrinkle: easing mortgage rates could revive resale activity, but would also improve new-home affordability and help builders compete with existing inventory. That makes a blanket short of D.R. Horton (DHI), KB Home (KBH), and Lennar (LEN) less clean than the article’s ratings imply. Builder incentives and land/inventory exposure matter; Toll Brothers (TOL) may not track the same customer or product mix.

Near term, the rate-and-oil narrative is a fragile catalyst: geopolitical relief may lower energy prices, but Treasury yields also reflect inflation expectations, issuance, and term premium. Over 1–3 months, watch existing-home transactions alongside HD/LOW comparable sales and guidance. Over 6–18 months, the structural upside depends on listings translating into completed moves and projects, while HD’s distributor acquisitions convert into profitable pro demand. The contrarian risk is that a below-average earnings multiple is not protection if estimates are still being cut. Treat chart signals as timing aids, not evidence that earnings have bottomed.

Key Decisions for Investors

• Build HD exposure in tranches rather than treating the analyst target or oversold technicals as a catalyst. Add only if retailer results stabilize; reduce or stop adding if comparable sales weaken further or management lowers earnings guidance.
• Keep LOW as a relative-value monitor, not an assumed loser: compare pro-customer trends, execution, and valuation before favoring HD. The demand mechanism is shared, so a broad housing rebound may lift both.
• If expressing the resale-versus-new-build view, consider a small, time-bounded long HD / short DHI-KBH-LEN basket rather than outright builder shorts. Reassess if mortgage-rate declines drive builder orders or guidance higher; the pair is not a pure hedge against rates.
• Track existing-home sales and listings together with HD/LOW comparable sales, transaction size, and pro-versus-DIY commentary. Rising listings without improving retailer demand would falsify the conversion-from-turnover thesis; verify consensus earnings revisions before relying on valuation.