Home Depot stock gains on Q2 earnings but a 'missing piece' remains

Home Depot HD shares are inching higher on Tuesday morning after the retailer posted market-beating financials for its second quarter.

The home improvement retailer recorded $4.92 a share of earnings (EPS) on $47.86 billion in sales – beating consensus estimates set at $4.73 per share and $47.23 billion respectively.

Despite the top and bottom-line beat, however, Oppenheimer’s senior analyst Brian Nagel says a key fundamental growth engine remains missing, which recommends caution in playing HD stock.

At the time of writing, Home Depot is hovering around the same price at which it started 2026.

Why is Nagel keeping cautious on Home Depot stock

The critical missing piece for Home Depot shares that Nagel outlined in a post-earnings interview with CNBC is the continued softness in large-ticket remodeling and home overhaul projects.

While seasonal categories like yard maintenance and everyday maintenance items did admirably, helping 13 out of 16 merchandising departments post positive comparable sales, consumers continue to pull back from discretionary financing.

Home Depot CFO Richard McPhail noted that homeowners remain hesitant to take out home equity lines of credit (HELOCs) or borrow against their homes to fund larger renovations.

With sticky inflation and high long-term interest rates lingering across the fixed-income market, homeowners are choosing to stay on the sidelines despite sitting on historic levels of home equity.

Q2 earnings may fail to break HD shares out of a range

This structural macro headwind limits the retailer’s upside potential – keeping Nagel cautious and firm on his hold-equivalent rating for HD shares.

A domestic comparable sales print of 1.3% demonstrates effective operational execution and market share gains, but it remains well below the company’s historical performance in a normalized housing environment.

“I don't predict rates, but from my seat, I do not see a quick fix to the rate issue we have in the US,” Nagel observed, citing elevated oil prices and broader macroeconomic stickiness as factors prolonging the stagnation in US housing turnover.

Until rate relief materializes to unlock housing mobility, the Oppenheimer analyst expects Home Depot stock to remain rangebound.

Oppenheimer prefers Lowe’s over Home Depot Inc

When evaluating investment opportunities in the home improvement retail sector, Oppenheimer maintains a clear preference for Lowe's Companies (LOW), reiterating an Outperform rating on Lowe’s over Home Depot.

Valuation plays a central role in this recommendation: Home Depot trades at about 24x forward earnings, whereas LOW shares trade at a more attractive discount of roughly 18x earnings.

Nagel views Lowe’s as the superior vehicle for investors looking to navigate the current macroeconomic slowdown, pointing to greater potential for internal operational improvements and "self-help" drivers.

All in all, while both retailers stand well-positioned to capitalize on massive pent-up demand once mortgage rates eventually ease, Lowe's Companies offers a better risk-reward entry point in the interim.