Home Depot Shares Rally as Analyst Turns Bullish

Shares of Home Depot Inc. saw a rally on Wednesday following Wedbush's bullish stance on the home improvement retailer. Analyst Seth Basham upgraded Home Depot's stock rating from neutral to outperform, citing positive housing-market fundamentals as the main driver. Basham also raised the stock price target by 15%, increasing it from $330 to $380.

In premarket trading, Home Depot's stock (HD) climbed 1.1% to reach a three-week high. Over the past three months, HD has achieved a 15.7% increase, while the SPDR S&P Homebuilders ETF (XHB) surged by 22.8% and the Dow Jones Industrial Average (DJIA) advanced by 11.2%.

Basham expressed optimism in a note to clients, stating, "We believe fundamentals are bottoming and we expect a return to growth by 2H24 on the back of lower interest rates, improving housing trends and rising consumer confidence." He anticipates an increase of "at least" low-single digit percentage range in home improvement project spending compared to the previous year, with Home Depot positioned as a "prime beneficiary."

The analyst acknowledged that Home Depot's stock faced challenges in 2023 due to surging interest rates resulting in declining existing-home sales and a shift in consumer spending towards services. Nonetheless, Basham highlighted that historically, when interest rates fall, Home Depot's stock has outperformed the S&P 500 index in anticipation of stronger housing fundamentals.

Read: Housing sentiment jumps as nearly a third of Americans believe mortgage rates will fall in the coming year.

Looking ahead, Basham predicts a 1% growth in same-store sales for Home Depot in 2024, while the FactSet consensus suggests a slight decline of 0.1%. In comparison, Lowe's Companies Inc., Home Depot's rival, is expected to experience a decline of 1.2% in same-store sales for 2024 according to FactSet consensus.