Over the past three years the U.S. housing slump has done a number on Home Depot (NYSE: HD), the world’s largest home improvement retailer.
Its stock generated an annualized total return of just 5.5% for 2023-2025, far behind the S&P 500 index’ 23% return. Home sales slumped during that period, while home prices remained at elevated levels, limiting homeowners’ spending on improvement projects.
But so far this year, the stock has returned 9%, compared to 1.1% for the S&P 500. That reflects investor sentiment that the housing market may soon rebound, and it reflects the excellence of Home Depot’s business model and execution.
Some of the enthusiasm about the housing market stems from falling mortgage rates. The 30-year fixed mortgage rate hit a 3 ½-year low of 5.98% Thursday, down from 6.76% a year earlier. To be sure, the optimism may be overdone. The rate stood at only 2.97% five years ago, so it’s unclear how much effect the drop will have on potential home buyers.
In any case, analysts agree that Home Depot is doing the right things to thrive. “It has realized strong historical returns due to its scale, operational excellence, and concise merchandising, which remain key tenets underlying our modest margin expansion forecast,” writes Morningstar analyst Jaime Katz.
She sees the adjusted operating profit margin averaging 13.8% over the next decade, compared to 13.1% in the last year.
Consistent sales growth
“Home Depot should consistently capture sales growth, bolstered by an aging housing stock, rising home prices, and a shortage in home inventory,” Katz said. That means consumers will renovate the homes in which they remain.
It’s not just the external housing market that will allow Home Depot to flourish. “An efficient supply chain, improved merchandising technology, and penetration of adjacent customer product segments” will help too, she said.
For example, the company bought SRS Distribution, which sells supplies to roofing, landscaping and pool professionals, for $18.25 billion in 2024 and purchased GMS, a specialty building products distributor, for $4.3 billion last year.
In fiscal 2025, ended Feb. 1, “SRS grew organic sales by a low single digit percentage and expanded market share, despite pressured industry demand and lack of storms in the back half of the year,” Home Depot CEO Ted Decker said in the company’s earnings call last month.
About 55% of Home Depot’s sales come from professional customers, like builders, and the rest from do-it-yourself homeowners.
Luring in the pros
Home Depot is boosting its attractiveness to the pros by building an outside salesforce and investing in order management and digital capabilities, Katz notes. It also offers a credit program that has 7,000 pro customers, who have increased spending by 30% on average.
Looking at the company’s earnings, its revenue slipped 3.8% to $38.2 billion in the fourth quarter of fiscal 2025. Same-store sales (including stores and digital channels open more than a year) climbed 0.4%. Earnings per share fell to $2.58 from $3.02 in 2024. But the latter figures includes 30 cents from an extra week of inclusion.
For all of fiscal 2026, Home Depot expects total sales growth of 2.5%-4.5%, and comparable sales growth of flat to 2.0%. It forecast earnings-per-share growth of zero to 4%. And it anticipates an adjusted operating profit margin of 12.8% to 13%.
U.S. tariffs have affected Home Depot, forcing it to lift prices. The company is now assessing the impact of the 15% across-the-board tariff imposed by President Trump last month. One mitigating factor: it sources 50% of its products domestically.
Put everything together, and Home Depot may be looking forward to a brighter future.
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