Despite a tough quarter, Home Depot remains the best stock play on lower rates
Home Depot shares are taking a beating on Tuesday after the company reported a miss on earnings and reduced its full-year outlook. However, the home improvement retailer is one of the best ways to play falling interest rates — and we snapped up more shares on weakness. Revenue in the firm’s fiscal 2025 third quarter rose 4.8% year over year to $41.35 billion, outpacing expectations of $41.1 billion, according to estimates compiled by LSEG. Adjusted earnings per share (EPS) in the three months ended Nov. 2, however, came up short, falling 1.1% to $3.74 apiece. Analysts were looking for $3.78, according to LSEG data. HD 1Y mountain Home Depot 1-year return Bottom line It was another tough quarter, but we firmly believe that long-term investors make their money buying the hated stocks of great companies. That is not a new concept; Baron Rothschild, the 18th-century British nobleman and member of the Rothschild banking family, is widely credited with the phrase (and investing concept), “Buy when there’s blood in the streets, even if the blood is your own.” Well, here we are, bleeding in Home Depot. Of course, you can’t buy simply because a stock is down. If your investment thesis is no longer intact, you may well bleed out altogether. However, we don’t think that the case is with Home Depot. The issues plaguing the company are macroeconomic, not due to management missteps. As a result, investors will likely be rewarded for taking the pain and leaning into the stock here, as we did this morning . Housing affordability is at a 40-year low, driven by elevated interest rates and low supply. And while we can’t know exactly when it will turn around, interest rates are expected to come down in the coming months, creating a strong risk/reward setup for the patient investors. While those factors should aid the topline, removing tariffs — over the past week, President Donald Trump has shown a willingness to roll back charges on certain products — should also provide a tailwind to margins and support a rebound in earnings growth. We are reiterating our 1 rating; however, we are reducing our price target to $420 from $440, reflecting management’s revised outlook. Home Depot 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 hasn’t been the best over the past couple of years, management has been making smart moves to strengthen the business. As a result, we think it’s ready to run once interest rates start to come down and translate into lower mortgage rates. That, in turn, should increase activity in the housing market — a dynamic we expect to materialize as we enter 2026. Competitors : Lowe’s Portfolio weighting: 3.95% Most recent buy: Nov. 18, 2025 Initiated : Sept. 9, 2024 Commentary Management said the expected demand uptick in the reported quarter didn’t materialize due to consumer uncertainty and ongoing pressure in the housing sector. Certain categories, including roofing, power generation, and plywood, that were expected to pick up in the quarter also failed to do so, as stormy weather was below historic norms and management expectations. By contrast, Home Depot posted positive comps in 9 of 16 merchandising categories, including kitchen, bath, outdoor garden, storage, electrical, plumbing, millwork, hardware, and appliances. Though comparable transactions were down, the increase in the comparable average ticket more than offset that decline. That’s generally not how we like to see the top line grow; we prefer it to be driven by volume. But given the pressure we’re seeing on the consumer and housing sectors in particular, it’s a good indicator of Home Depot’s pricing power, and we expect volume to rebound as the housing market improves in the year ahead. Bill Bastek, head of Home Depot’s merchandising unit, attributed the growth in comp average ticket to a greater mix of higher ticket items, customers continuing to trade up for new and innovative products, as well as modest price increases. Versus the year-ago period, Bastek noted that comp transactions on big-ticket items (those items priced over $1,000) were up 2.3% year-over-year. Against that, Bastek did note that larger discretionary projects, think those that tend to rely on financing (where demand is fluctuates with interest rates), have been weak. Put another way, folks may be willing to buy a new refrigerator, but they’re pushing off the full kitchen remodel. Digital platform sales were a bright spot, increasing 11% year over year, with Bastek stating that “faster delivery speeds are resonating with customers and driving greater engagement and sales.” Guidance Management updated its outlook for the full year to reflect its third-quarter performance, continued fourth-quarter pressure from the lack of storm activity, ongoing consumer uncertainty and housing pressure, and the inclusion of GMS. Revenue is now expected to grow about 3% year over year, including a roughly $2 billion contribution from the GMS acquisition. This compares with prior guidance for a 2.8% increase, excluding GMS. That compares to expectations for slightly greater than 3% year-over-year growth, according to LSEG Adjusted earnings-per-share are now expected to drop by about 5% versus a 2% decline previously forecast, a miss of expectations for a year-over-year decline of less than 2%. Same-store sales are now expected to be “slightly positive,” down from a previously called roughly 1% increase. This compares to a 0.9% FactSet consensus estimate. Gross margin is forecast to fall to 33.2%, from 33.4% previously. Adjusted operating margin is now expected to fall to 13%, from 13.4% previously. On the call, management attributed about 20 basis points of the downward revision to transaction expenses relating to the GMS acquisition. (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. 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