Home Depot stock has 14% downside after Q4 earnings – analyst says

An HSBC analyst just turned bearish on Home Depot Inc (NYSE: HD) even though it reported better-than-expected quarterly earnings report a day earlier.

Home Depot stock has downside to $323

Daniela Bretthauer downgraded the home improvement retailer this morning to “reduce”. Her $323 price objective suggests a 14% downside from here.

The analyst issued a dovish call on Home Depot stock primarily because it lacks catalysts in the near term. Her research note reads:

We lower our FY2025e and FY2026e EPS to USD15.10 and USD16.33, from USD15.98 and USD16.91, respectively.

$HD now expects total sales to gain about 1.0% in its fiscal 2024 – short of 1.6% that analysts had called for. At writing, shares of the Atlanta-headquartered firm are up more than 30% versus their 52-week low in late October.

$HD is expensive at 24 times forward PE

Note that Home Depot Inc currently pays a dividend yield of 2.48% which does make it more attractive for investment.

Still, Daniela Bretthauer recommends against owning $HD as its operating costs are increasing faster than sales and, therefore, signal a continued hit to margins and profitability at large.

More importantly, Home Depot stock is expensive at 24 times its projected FY2025 earnings considering it has historically (10-year average) traded at under 22 times.

On Monday, the New York listed firm revealed plans of opening a dozen new stores this year, as per its press release on Tuesday. Richard McPhail – its chief of finance is convinced the “pressures we saw in 2023 are receding”.