Home Depot was a mistake but selling it now would compound it. Why we’re hanging on
Home Depot shares on Tuesday worked their way modestly higher after a down open on a quarterly update that was just OK and a status quo outlook. Revenue for the first quarter ended May 3 advanced 4.8% year over year to $41.77 billion, outpacing the $41.52 billion expected by LSEG. Earnings per share (EPS) declined 3.7% to $3.43, but exceeded the $3.41 analyst estimate. HD YTD mountain Home Depot YTD We’re sticking with Home Depot for now, but the unfavorable rise in market interest rates leaves us with no choice but to cut our price target on the stock to $360 per share from $420. Investors are not going to pay up as much for a housing play tied to mortgage rates when rates are rising. We’re reiterating our hold-equivalent 2 rating . Bottom line Despite beating on the top and bottom lines, quarterly same-store sales came up short. Those results, against the backdrop of rising bond yields, were good enough to keep the stock from declining even further. At this point, we’ll take it. But, as Jim Cramer has said repeatedly before and after the print, we do regret getting involved with this name in the first place. It’s not so much a management issue, though we do think the team at Lowe’s is doing a better job lately. We’ll know for sure when Lowe’s reports earnings on Wednesday morning. A quick look at the stock charts of Lowe’s and Home Depot shows investors are not rewarding the execution at Lowe’s much more than they are at Home Depot. It’s just that this is as bad an operating environment for housing-related stocks as we have seen in decades. Why we own it Home Depot is a best-in-class operator with about 55% of sales coming from serving professionals and 45% from do-it-yourself homeowners. While the operating environment has not been the best over the past couple of years due to elevated interest rates, management has been making smart moves to beef up Pro. Competitors : Lowe’s Portfolio weighting: 2.59% Most recent buy: Nov. 18, 2025 Initiated : Sept. 9, 2024 On the post-earnings call, Home Depot CEO Ted Decker said, “We are probably all spending too much time in economics in the home improvement industry these days.” He did acknowledge, “If it’s higher for longer on rates in a slow housing market, we’re just going to have to keep working our way through this period of moderation, keep focusing on controlling what we can control and take share in the marketplace.” Unfortunately, the reality we now face is that, against any and all notable positives regarding Home Depot’s business, we have to contend with a 10-year Treasury yield at its highest level since January 2025, and a 30-year Treasury yield at its highest level in nearly 19 years. Large home projects and renovations are tied to home equity line of credit (HELOC) rates. Purchase activity of both new and existing homes is tied to mortgage rates. With both taking cues from the bond market, demand wanes when bond yields rise. That leaves us with a broken stock; there’s no point in denying it. Home Depot depends on both home projects and home purchases. However, just as it was wrong to buy the stock, we do not think that now is the time to sell. While the ho-hum quarter and share price action in the face of rising rates imply that the stock is trying to bottom, we have no desire to pick up more shares. We do not see a catalyst for lower rates outside of an agreement with Iran that reopens the Strait of Hormuz, the crucial waterway for oil transport. Oil prices have soared since the start of the war in late February, taking fuel prices higher as well. “We see increased fuel costs, not only hitting us directly. We obviously have a considerable amount of transportation expense in our [profit and loss], but also in the form of input costs,” Home Depot CFO Richard McPhail said on the call. He added that tariff refunds, which are still a question mark, “could provide a significant offset to those costs.” When the closure of the Strait of Hormuz ends, it should give Kevin Warsh , who is set to be sworn in as the new chairman of the Federal Reserve on Friday, the cover to deliver on President Donald Trump ‘s lower rate mandate. Home Depot may then prove to be a coiled spring, which is why we’re keeping the stock in the Club portfolio. Despite a tough operating environment, Home Depot continued to make moves that should hasten the recovery once things improve. On the call, Decker reminded investors of the completion of Home Depot’s acquisition of Mingledorff’s, which brings a leading wholesale distributor of heating, ventilation, and air conditioning (HVAC) equipment under the company’s umbrella. “Mingledorff’s brings an extensive product portfolio, a robust distribution network, and established customer relationships that are highly complementary to SRS’ existing business,” Decker said. SRS is the specialty trade distribution company that Home Depot acquired back in 2024 for around $18 billion. It serves roofing, landscaping, and pool contractors. While comps were slightly negative, total SRS sales were higher year over year. More importantly, the team believes the business gained considerable market share in the quarter and expects the business to deliver mid-single digit positive organic growth for the year. SRS also houses GMS, another specialty building products distributor, which Home Depot bought for more than $4 billion in 2025. Commentary During the quarter, overall same-store sales increased 0.6% versus the year-ago period, as a 2.2% increase in the average ticket price more than offset a 1.3% decline in customer transactions. U.S. same-store sales increased 0.4%. Both measures missed estimates. On the conference call, marketing chief William Bastek said that big-ticket items (those with prices over $1,000) realized a 0.8% increase versus the prior year period. Bastek added, “We were pleased with the performance we saw on portable power and patio. However, larger discretionary projects remain under pressure during the first quarter. Pro posted positive comps and outperformed DIY. We saw strength in DIY across many spring-related categories, including live goods, outdoor power equipment, patio grills, and storage. And for Pro, we saw strength across many pro heavy categories like power pipe and fittings, water heaters, fasteners, and paint. The investments we are making are resonating with our Pros as we see increased engagement.” Looking at the monthly cadence, overall comps were up 0.7% in February, up 2% in March, and down 0.5% in April. In the United States, comps were up 0.4% in February, up 2% in March, and down 0.8% in April. Importantly, management attributed the poor April performance to bad weather in the back half of the month. However, as May got underway and the weather improved, the team noted that engagement began to come back online, with the start of the new quarter looking more like February, March, and April, before the weather took its toll. Guidance Management reaffirmed its preliminary 2026 forecast from December: Sales growth of 2.5% to 4.5%, which at the 3.5% midpoint equals a target of $170.45 billion, short of the Street’s $171.35 billion estimate, according to LSEG. Flat same-store sales growth to up 2%, which at the 1% midpoint is below the 1.4% estimate, according to FactSet. Gross margin of 33.1% with an adjusted operating margin of 12.8% to 13%, both in line with FactSet estimates. Flat adjusted earnings growth to up 4%, which at the 2% mark, amounts to earnings of $14.98 per share, short of expectations of $15.05, according to LSEG. (Jim Cramer’s Charitable Trust is long HD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. 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