Home Depot navigated a challenging 2024 marked by elevated interest rates and a cautious consumer. But as the year progressed, signs of recovery emerged, setting the stage for a rebound in 2025, fueled by increased housing turnover and pent-up demand in the home improvement market. Year-to-date performance: up 12% Forward price-to-earnings multiple: 25 versus a five-year average of 21.5 Our rating: Buy-equivalent 1 Our price target: $440 a share HD YTD mountain Home Depot year to date performance. ’24 look back Home Depot had a rollercoaster year in 2024, starting slow in a high-rate environment before finding momentum later in the year. The stock was subdued through the first half as elevated borrowing costs weighed on big-ticket home improvement projects. Things started to shift in March, when expectations of multiple Federal Reserve rate cuts lifted sentiment, pushing the stock higher. However, those gains were short-lived as investor expectations reset in May. The real turning point came in mid-September when the Fed kicked off its monetary easing cycle with a jumbo 50 basis point rate cut. This sparked optimism about the housing turnover, which hit a 30-year low earlier in the year. Home Depot shares climbed steadily, reaching an all-time intraday high of nearly $440 on Nov. 26. Since then, the stock has pulled back more than 11% as of Monday trading. Over that stretch, the S & P 500 has been relatively flat. Still, Home Depot is among Jim Cramer’s 12 core holdings. We initiated our position in Home Depot in early September , betting that falling mortgage rates could spark activity in the languishing housing sector. Despite two more Fed rate cuts for a total of 100 basis points, or 1 percentage point, of easing in 2024, the 10-year Treasury yield remained elevated. Mortgage rates take their cues from bond yields — so the cost of home loans also remained elevated, which has pushed out the expectations for a housing formation recovery and the subsequent business Home Depot would get to as a result. ’25 look ahead Home Depot is gearing up for a comeback in 2025, with early signs of recovery already evident. The company’s third-quarter results , reported in mid-November, hinted that its business is bottoming out and poised to inflect positively next year. As housing turnover picks up, driven by eventually falling mortgage rates, demand for home improvement projects is expected to rise. The Fed projected two more rate cuts in 2025. Since there won’t be a huge ramp-up in new homes built next year, people will have to buy older U.S. homes, which need of upgrades and repairs. Whether it’s contracting professionals or do-it-yourself shoppers, Home Depot remains the go-to destination for home renovation supplies. We prefer Home Depot to rival Lowe’s because it is more exposed to the pro market. Home Depot beefed up its presence among professional contractors through its recent acquisition of SRS Distribution, a network of independent roofing and building supplies distributors. Rates remain the key to Home Depot’s turnaround. If mortgage rates drop below 6%, the company’s comparable sales should return to positive territory in time, reversing the weakness in big-ticket projects. The prospect of further Fed easing is likely to support the stock since home improvement stocks tend to rise as rates fall, given they’re inversely related. This should be followed by earnings growth at Home Depot. But there is a risk that longer-term bond yields — which mortgage rates track more closely — will continue to rise. This could delay Home Depot’s return to growth. While it is possible that Home Depot could have some tariff issues as it relates to its exposure to Mexico, Canada, and China, the retailer should be less vulnerable given over half of their portfolio is sourced from the U.S. (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. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
A Home Depot store in Washington, DC, US, on Monday, Aug. 12, 2024. Home Depot Inc. is scheduled to release earnings figures on August 13.
Ting Shen | Bloomberg | Getty Images
Home Depot navigated a challenging 2024 marked by elevated interest rates and a cautious consumer. But as the year progressed, signs of recovery emerged, setting the stage for a rebound in 2025, fueled by increased housing turnover and pent-up demand in the home improvement market.