Morningstar

Home Depot Earnings: Sales Growth Lifted by Pro Additions as DIY Still Bound by Tough Housing Market

Home Depot’s ability to merchandise for both DIY and pro customers has allowed it to capture increased market share.

The Home Depot logo on store exterior.
Artur Widak/NurPhoto via Getty
Securities in This Article
The Home Depot Inc
(HD)

Key Morningstar Metrics for Home Depot

  • Fair Value Estimate
    : $325.00
  • Morningstar Rating
    : ★★★
  • Morningstar Economic Moat Rating
    : Wide
  • Morningstar Uncertainty Rating
    : Medium

What We Thought of Home Depot’s Earnings

Home Depot’s HD second-quarter sales grew 5.7%, helped by 1.7% same-store sales growth, the Gypsum Management & Supply acquisition, and new distribution branches. Adjusted operating margin of 14.7% (down 10 basis points) was hurt by higher costs, partially offset by $685 million in tariff refunds.

Why it matters: Organic growth is elusive as the housing market remains stalled. Over the past five years, the monthly mortgage payment for a median US home has risen by around $1,000, more than half of which is due to higher financing costs. This has led to lower turnover and home improvement spending.

  • Still, Home Depot’s ability to merchandise for both DIY and pro customers has allowed it to capture increased market share, given that industrywide, building material and garden equipment and supplies dealers’ retail sales rose less than 1% over the past three months.
  • We think investments to raise brand awareness, including the launches of express delivery (three hours) and Magic Apron (artificial intelligence tool), as well as exclusive launches (USG, Ruco), support ticket growth (2.8%) via pricing strategies and lead to customer stickiness.

The bottom line: We see no major change to our $325 per share fair value estimate for wide-moat Home Depot, and we see shares as fairly valued. We think fear of more interest rate hikes by the Federal Reserve, which could crimp housing demand, might plague the near term.

  • Although the firm will see a $730 million gross margin aid in 2026 from tariff refunds, it held its 33.1% margin outlook. Upside is bound by inflation (fuel, energy, input costs) and a negative mix from the GMS tie-up. In turn, the 2026 adjusted operating margin is set to drop only 20 basis points.
  • We don’t believe big-ticket projects will be pressured in perpetuity, and that when such undertakings resume, Home Depot should be able to capture 4% same-store sales growth (including SRS). As such, costs should lever again, driving operating margin back to nearly 15%.

Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

Sponsor Center