Home Depot (HD) PT Raised to $430 at Evercore ISI
Evercore ISI analyst Greg Melich raised the price target on Home Depot (NYSE: HD) to $430.00 (from $420.00) while maintaining a Outperform rating.
The analyst comments "1Q21. 156m stimulus checks ($400bn) hit households. 30% of the U.S. population had a COVID jab. Opening Day Baseball occurred at 12-40% capacity. And Home Depot printed its last quarter of positive traffic. 14 quarters of negative traffic behind us, at least the duration of the post-COVID is approaching the 16 straight quarters during the Global Financial Crisis. The upshot: 3Q’s - 0.6% comp transaction decline was best since the fall started – while a transaction boost from weather & hurricane related sales likely brought traffic positive in Oct. In addition, pro sales were positive – outperforming DIY sales again with the SRS acquisition providing a specialty base to build off into ‘25 & beyond. HD’s providing public investors a way to play consolidation and value creation in these fragmented specialty markets, and given their scale, balance sheet and execution we wouldn’t bet against them. Home Depot has pivoted the business towards the secularly growing pro side (HD Supply, SRS), investing in technology and service to keep gaining share for whenever the housing recovery commences. Bears will focus on risks of lower margins or ROIC in the faster growing Pro side of the business, with a belief that synergies with the core DIY are lacking. Bulls can point to the expanding TAM, share gains, digital growth, and FCF generation already driving deleverage. Our Home Improvement Lead Indicator just hit a 3-year high, keeping us in the bull camp with above consensus estimates for 2025. HI spend per unit might be below trend, but at least a bottom is forming near $925/quarter (see figure 14). Improving results allows deleverage ($1bn CP paydown in 3Q), bringing debt/EBITDAR close to the 2x goal by the end of 2025. While waiting for the housing turn can be frustrating, we land on the bull’s side. HD stock move has added to its premium to the market, although $15 are clearly depressed earnings. Our Base case of $420 is based on the stock normalizing at a 25% premium to the market on our 2026e of $17. The bull case of $500 is when $20 of EPS power at 25x comes into focus. The Bear Case is EPS stuck at $15, and the market slapping a depressed multiple (10% premium) on depressed earnings, taking the stock to $350."