The U.S. housing market might be thriving, but some experts are bearish on one of its chief beneficiaries in the retail space. One recent sign of this was a mid-February recommendation downgrade on Home Depot(NYSE: HD) from an international banking group tracking the stock.
That bank's price target of $323 is down quite some distance from its recent trading level around $378, which is just 1.5% off all-time highs. Here's a look at whether it might be worthwhile to sell at that price.
HSBC downgrades Home Depot but keeps its price target intact
HSBC Global Research's Daniela Breithauer downshifted her Home Depot recommendation to reduce (sell, in other words) from her former tag of hold. Somewhat atypically, in doing so the pundit maintained her price target, which was and remains $323 per share.
As is often the case behind significant analyst adjustments like recommendation changes, the move came in the wake of an earnings report. A day after Home Depot unveiled its numbers for both the fourth quarter and the entirety of 2023, Breithauer pulled the lever on the downgrade.
She is most concerned with cost pressure and its damaging effect on the fundamentals. She wrote, "Operating cost inflation is growing faster than sales, putting pressure on margins and overall profitability."
Bearing that firmly in mind, she lowered her estimates for both full-year 2025 and 2026 earnings. Additionally, Breithauer feels that since the company recently traded at a 10% premium to its forward P/E averaged across a 10-year period, it was overpriced at current levels.
Weak guidance for 2024
Home Depot's own forecasts don't really inspire confidence. In that earnings report, Home Depot guided for 1% annual growth in both net sales and net income for the full year 2024. And, as the HSBC analyst pointed out, it's currently priced as if it has notably more growth in store. Considering that, I feel Home Depot would be a good stock to sell at around the $380 per share mark.
Should you invest $1,000 in Home Depot right now?
Before you buy stock in Home Depot, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Home Depot wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.
