While the market is targeted on Walmart’s (NYSE:WMT) impressive quarterly results today, little or no attention is being paid to America’s best-known home-improvement superstore, Home Depot (NYSE:HD). That’s unlucky, as an argument might be “constructed” (pun fully intended) that Home Depot is emblematic of the nation’s economic health — or lack, thereof.
In other words, when Home Depot is prospering, consumers are consuming and America’s fiscal juices are flowing. Because it seems, Home Depot’s results and forward guidance suggest the U.S. housing market could also be in a slump for some time.
Nonetheless, this doesn’t necessarily mean that the outlook is entirely hopeless or that Home Depot doesn’t deserve your investable capital now.
A “yr of moderation”
Remember how Meta Platforms CEO Mark Zuckerberg called 2023 a “yr of efficiency” for the corporate? Home Depot CEO Ted Decker has a unique moniker for last yr, although today’s investors won’t be particularly pleased with the CEO’s alternative of words.
“After three years of remarkable growth for our business, 2023 was a yr of moderation,” Decker remarked in an announcement.
If Zuckerberg’s “yr of efficiency” referred to strategic cost-cutting, then Decker’s “yr of moderation” evidently conveyed the consternation of prospective home buyers in 2023. Between sticky inflation and sky-high mortgage rates, last yr didn’t offer America’s most favorable housing-market conditions.
The upshot was a fourth quarter rife with “moderation.” Specifically, Home Depot’s total sales declined 2.9% yr over yr to $34.8 billion. Moreover, the corporate’s global comparable-store sales decreased 3.5% while its U.S. comparable-store sales fell 4%.
Perhaps none of this should surprise anyone, given the difficult environment that Home Depot needed to navigate in Q4.
“One among the major issues [for Home Depot] continues to be a really sluggish housing market,” GlobalData Retail analyst Neil Saunders explained in a note to clients. “This continues to suck numerous demand out of the market as home movers are, traditionally, big spenders on improvement,” he added.
Brian Nagel, managing director and senior analyst at Oppenheimer, seemed unimpressed with Home Depot’s quarterly results. In an interview with Yahoo! Finance Live, Nagel called Home Depot’s earnings report “very blasé” and discerned that the corporate remains to be coping with “a post-pandemic-type dynamic.”
It’s possible that this “dynamic” contributed to Home Depot’s lackluster bottom-line results. Nagel tempered his critique by acknowledging that the corporate is “extraordinarily well-managed” and still “solidly profitable.”
Nonetheless, today’s investors didn’t respond with much enthusiasm as Home Depot reported Q4 2023 net earnings of $2.82 per diluted share, down 14.5% yr over yr.
In search of hope in 2024
Mirroring his boss’ “moderation” statement, Home Depot Chief Financial Officer Richard McPhail warned in an earnings call, “We still expect pressures to our business in 2024… We’re planning for a yr of continued moderation.”
Thus, Home Depot called for its comparable-store sales to say no “roughly” 1% in 2024.
That wouldn’t be the worst possible consequence after Q4 same-store sales fell 3.5%, however the market just wasn’t within the mood to tolerate any “blasé” guidance today. Furthermore, Saunders offered some hope of a housing-market recovery this yr.
“Fortunately, there’s some evidence that the housing market will pick up barely in 2024,” Saunders observed in a note clients.
In a similarly optimistic vein, analysts at Wedbush Securities noted a “rebounding industry environment with healthy Pro and general employment, solid wage growth, and homeowner spending power from continued home-price appreciation.” If it persists in 2024, it’ll be positive for Home Depot and for America’s economic climate overall.
With that, the Wedbush Securities analysts lifted their HD stock rating from Neutral to Outperform. It’s a daring upgrade during a time of uncertainty in America’s housing market.
There’s one other sign that Home Depot is ready to weather any perceived economic storm. The corporate’s board just approved a 7.7% increase within the quarterly dividend to $2.25 per share. This translates to an annual dividend of $9 per share, or a yield of two.48% at a share price of $363.
Truly troubled businesses typically don’t hike their dividends like that, in order that’s one other checkmark within the positive column for Home Depot. Thus, while everybody and his uncle pore over Walmart’s earnings report, be happy to hunker down with Home Depot stock, collect some decent dividend distributions, and hope for an American housing recovery.
Disclaimer: All investments involve risk. By no means should this text be taken as investment advice or constitute responsibility for investment gains or losses. The data on this report shouldn’t be relied upon for investment decisions. All investors must conduct their very own due diligence and seek the advice of their very own investment advisors in making trading decisions.