As the home improvement sector enters a seasonal slowdown and faced with indications that the category is deteriorating from last year, Stifel downgraded Home Depot (HD) to Hold from Buy and trimmed 16% from its price target to reflect a weaker second half to 2025 and delayed recovery in the home improvement space.
“We continue to believe the drivers of the home improvement category are firmly in-tact, but believe the near-term setup is too challenging to maintain our positive approach,” Stifel’s W. Andrew Carter said in a note to clients.
Along with his downgrade to Home Depot (HD), Carter also sees Hold-rated Lowe’s (LOW) suspending any share repurchases until the second half of 2027 and meaningfully lowers his comparable sales estimate for both Lowe’s (LOW) and Home Depot (HD) ahead of third quarter results next week.
Notably, Carter does not believe Wall Street fully appreciates the magnitude of these revisions and expects Home Depot’s (HD) third quarter results and commentary will “illuminate a weaker SRS Distribution performance relative to initial expectations with the shortfall driving scrutiny for Home Depot’s Complex Pro efforts,” Carter adds.
Ahead of Q3 results, Carter now expects Home Depot (HD) will report comparable sales of +0.7% versus earlier estimates of +1.9% and EPS of $3.73 from $3.85, initially. Fourth quarter estimates have also been lowered to reflect softer comparable store sales and now expects Home Depot (HD) will have to adjust current guidance to reflect the lackluster comp sales performance anticipated in FY25.
For Lowe’s (LOW), Carter anticipates Q3 comparable sales to contract by 0.4% from +1.3% prior, and EPS of $2.89 from $2.94. For Q4, comparable sales are expected to again contract by 0.4% from +0.9%, and EPS revised down to $2.07 from $2.18.
Home Depot (HD) reports before the market open on Tuesday, November 18, expected to have earned a profit of $3.84 per share on $41.14B in sales.
Lowe’s (LOW) reports before the open on Wednesday, November 19, and expects to have earned a profit of $2.98 per share on $20.89B in sales.