A point came out of the recent earnings call for home improvement giant Home Depot (HD) that may leave some investors concerned. Home Depot was already on the ropes over tariffs, forced to raise prices to cover the shortfall. But there were also some greater concerns about Home Depot’s own customer base. Customers are not pursuing large-scale home improvement projects, and that could hurt going forward. Home Depot stock was down fractionally in Wednesday afternoon’s trading.
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Richard McPhail, Home Depot’s chief financial officer, stepped in to let investors know that larger-scale home improvement projects, typically financed through small loans or home equity tapping, just were not coming up. Essentially, customers seemed particularly concerned about going into debt for their projects, McPhail noted. That kept customers sidelined, and would throw a bit of a headwind Home Depot’s way.
McPhail pointed to “…general uncertainty and higher borrowing costs in the form of interest rates.” With more economists pointing to concerns about stagflation—the insidious combination of stagnation and inflation that represents one of the worst conditions an economy can be in—and President Trump himself frantic to get Fed Chairman Jerome Powell to loosen up, it is easy to see why customers are putting off any project that might require a larger loan.
The Pro Market Awaits
But Home Depot may have a larger plan afoot that will allow it to get past the rough patch of consumers not going into debt for substantial home improvement projects. That is the professional builder market. Granted, the individual do-it-yourselfer is still big with Home Depot, but the pro builder is bigger still.
Home Depot is taking particular pride in the combination of “…scale, balance sheet…(and) ability to integrate physical and digital channels…,” using these to better infiltrate the professional contractor market. Given that the “addressable pro market” is worth somewhere around $450 billion by itself, that represents the kind of market that can comfortably weather economic downturns.
Is Home Depot a Good Long-Term Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on HD stock based on 17 Buys and six Holds assigned in the past three months, as indicated by the graphic below. After a 9.92% rally in its share price over the past year, the average HD price target of $441.16 per share implies 9.51% upside potential.
