HD Stock Forecast: Adapting to the Consistently Changing Reality is the Key to Success

Adi RavedThis HD Stock Forecast article was written by Adi Raved – Financial Analyst at I Know First.


  • HD sent its shares up more than 50% this year, well ahead of the 22% rise of the S&P 500 index
  • HD’s Operating Margin is 15.1%, higher than 88.53% of the 1069 companies in the Retail industry
  • HD focuses on professional customers and digital sales and the effort it makes to enhance its productivity will probably contribute to its long-term growth
(Source: commons.wikimedia.org)

Overview of The Home Depot Incorporated

The Home Depot Incorporated was founded in 1978, by Bernie Marcus and Arthur Blank. It is the world’s largest home improvement retailer with approximately 500,000 associates and 2,300 stores in the U.S., Canada, and Mexico. It is headquartered in Atlanta, Georgia. A typical store averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer (do it yourself, home improvement projects), professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.

 The company aspires to excel in service to its customers, associates, communities, and shareholders. Their vision is to enable a one-stop shopping experience for those who want to engage in DIY.

All Clouds have a Silver Lining

(Source: rgbstock.com)

The ongoing outbreak of coronavirus, COVID-19, as well as subsequent outbreaks driven by new variants of the virus, such as the Omicron variant, and government restrictions forced people around the globe to stay home day after day for a very long while. After an initial shock, the extended-stay indoors has resulted in a material increase in consumer spending on home renovation and related services as compared to pre-2019 levels. People’s homes became their office, their refuge, and children’s studying area and playing ground. This resulted in many new needs and growing demand for renovation tools and materials. The Home Depot’s online service met the demand perfectly.  According to a survey from Lowes in December 2020, approximately 40% of consumers reported that they had started a new hobby involving tools or home improvement while 59% said they would continue to spend a percentage of the money that went towards other things pre-pandemic on home improvement.

According to the company’s latest 10-Q form, HD had net sales of $36.8 billion in the third quarter of 2021. Net earnings were $4.1 billion. They opened four stores in the U.S. and one store in Mexico during the third quarter of 2021, resulting in a total store count of 2,317 at the end of the third quarter of 2021. They generated $13.4 billion of cash flow from operations and issued $3 billion of long-term debt during the first nine months of 2021. This cash flow, together with cash on hand, was used to fund cash payments of $10.4 billion for share repurchases, pay $5.3 billion of dividends, fund $1.7 billion in capital expenditures, and repay an aggregate of $1.5 billion of long-term debt. The company ROIC for the trailing twelve-month period was 43.9% at the end of the third quarter of 2021 and 41.6% at the end of the third quarter of 2020.

HD’s revenue significantly increased in 3Q2021 compared with 3Q2020. It is worth noting that the share of building materials in the revenue structure is more significant than the share of decoration products and hardlines.

(Figure 1 – The Net Sales Structure Ended on October 31 for 2019 – 2021)

According to GuruFocus, HD’s ROE of 822.73 is better than 99.71% of 1027 companies in the Retail – Cyclical industry. The Operating Margin of 15.1% is higher than 88.53% of 1069 companies in the industry. This can exhibit the company’s excellent profit generation ability.

source: gurufocus.com
(Figure 2 – HD vs Retail Industry)

Contractors make up only 5% of Home Depot’s shoppers but account for 45% of its $132 billion worth of annual sales. They often demand to receive their orders on a stringent timeline. Meeting the demand has become very challenging amid the supply-chain crunch that’s upended stocking and transport around the country and the world.

The company’s new facility in Stonecrest, Georgia, which is called a flatbed distribution center, is designed with contractors in mind. Its aim is to ease the complexity of direct-to-consumer sales, and win market share from both its main rival, Lowe’s Cos., and from independent distributors. With growth from the do-it-yourself crowd now being outpaced by sales to contractors, the stakes are high to get it right. The company has built similar distribution facilities in major markets such as Dallas, Baltimore, and Miami and there are more to come. It’s part of $1.2 billion of investment over five years on supply-chain improvements that started well before the Covid pandemic roiled the world’s shipping markets. The company is betting that if it can keep contractors happy, other customers will follow. With the flatbed facilities, the company believes that it is possible to control last-mile delivery to earn its professional audience’s trust. The investment in its supply chain is one of the biggest initiatives Home Depot has taken on.

The company is consistently taking initiatives to attract additional professional customers and deepen the relationship with the existing ones. In addition, the company continues to invest in its online capabilities as more and more customers opt for digital platforms for their shopping needs. Those efforts have helped the company in boosting online traffic and conversion. On top of that, the company aims to improve its margins through various efficiency measures that will ensure improved store space utilization, better on-shelf product availability and enhanced labor utilization. The fact that Home Depot focuses on professional customers and digital sales and makes efforts to enhance its productivity will probably contribute to its growth. 

What about the Omicron?

Nowadays, the threat hasn’t been eliminated yet. Scientists fear that the Omicron variant‘s emerging strain could be more transmissible and that it has a higher resistance to vaccines. As cases of the Omicron Coronavirus variant are detected around the world, researchers are racing to understand the implication of its genetic mutations, which far exceed the number on any previous variant. Consequently, multitudes around the world might find themselves staying at home once again.

(Source: ft.com)

The Omicron is spreading rapidly in South Africa.  Outside Africa, cases have already been reported in more than 20 countries in North and South America, Europe, and Asia. Vaccine manufacturers and academics are working around the clock to assess how effective the jabs that were developed to combat the original virus will work against the Omicron variant.

According to Pfizer and BioNTech, a booster Covid shot is necessary to tackle the omicron variant and they are still working on an omicron-specific vaccine. The omicron-specific vaccine could launch in March.

HD Stock Forecast: The Fundament for Future Growth in the Post-Pandemic Era

Regardless of the Omicron, even before it made headlines, it seemed like the love consumers gained for their home during the pandemic hasn’t abated; At least as seen through the affinity for buying home-related merchandise to make things a bit more comfortable. For example, average daily spending for the week ending May 8 at home improvement retailers increased 35.1% versus the comparable week of 2019 and 5.9% year-over-year, according to Bank of America’s analysis of spending on its debit and credit cards. For housing-related services, average daily spending grew 46.1% for the week ending May 8 versus the same week of 2019. The sales gain marked a 37.7% pop from a year ago as COVID-19 restrictions have eased amid increased vaccinations, allowing contractors to safely enter one’s home. The sales strength extended into home furnishings, too. Average daily spending at home furnishings retailers for the week ending May 8 increased 35.3% compared to the similar week in 2019. Sales surged 73.7% from a year ago.

HD Stock Forecast: Conclusion

To sum up, Home Depot sent its shares up more than 50% over the course of 2021, well ahead of the 22% rise of the S&P 500 index. HD’s market capitalization of $426 billion is more than $40 billion higher than that of Walmart Inc., despite the discount giant’s much greater revenue.

It is reasonable to assume that the prosperity trend will continue during 2022 due to some reasons. First, HD has invested generously in order to enhance its productivity, improve its supply chain, and earn its professional audience’s trust, moves that will probably keep contributing significantly to its long-term growth. In addition, it seems like the Covid-19 virus is here to stay for another while, which means the necessary restrictions and following high demand for renovation tools and materials is expected to last.

I believe that HD is a buy stock since the company proved lately it has its finger on the pulse of what is going on. I believe that if the company will keep adjusting to the consistently changing reality, it will keep standing out in the retail industry.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the HD stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with HD Stock Forecast

I Know First has been bullish on the HD stock forecast in the past. On November 17th, 2021 the I Know First algorithm issued a forecast for HD stock price and recommended HD as one of the best stocks to buy. The AI-driven HD stock prediction was successful on a 7-days time horizon resulting in more than 5.04%.

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