Falling interest rates should be good news for the home improvement retailer.
Home Depot (HD -0.78%) has struggled in recent years with a sluggish housing market. Sales and profits are down following a boom during the pandemic, and there’s not much management can do to correct that.
However, the stock has begun to return toward its previous heights on bets that falling interest rates will drive a rebound in the housing market benefiting the retailer, and one Wall Street analyst just upgraded the stock on that trend.
Image source: Home Depot.
Gordon Haskett calls Home Depot a buy
Gordon Haskett raised its rating on Home Depot Wednesday from accumulate to buy, saying that trends in the housing market were beginning to shift.
Though it said that a recent survey showed that home improvement demand is still low, trends seem to be bottoming out as interest rates are reaching a point where respondents are more interested in spending money on the home improvement category.
The research firm expects trends to improve next year, favoring Home Depot. It gave the stock a price target of $450, implying a 9% upside in the stock.
Is Home Depot a buy?
Much of the expected recovery in Home Depot seems priced in as the stock is up 22% in the last three months even as the business performance has yet to significantly improve. It now trades at a price-to-earnings ratio of 28, which seems expensive relative to its performance.
However, a year from now the business could be booming as rates should be roughly 1.5 percentage points lower, and pent-up demand from the recent housing slowdown should be unleashed.
Given its leadership in the home improvement retail market and the coming cyclical tailwinds, the stock looks like a good bet to keep moving higher.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.
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