Home Depot Stock (HD) Testing Support Ahead of Earnings – What To Expect

Home Depot (HD) is under pressure, with its stock price hovering precariously above the $360 support level ahead of its crucial third-quarter earnings release scheduled for tomorrow. HD's stock is down 2.72% in the last five days following a recent analyst downgrade, broader market anxieties, and lingering concerns about the home improvement sector's growth prospects.

Analysts project that Home Depot will report an earnings per share (EPS) of $3.83 in its upcoming earnings report, an increase from $3.67 EPS recorded in the same quarter last year. Revenue estimates stand at approximately 41.12 billion, reflecting a modest year-over-year sales growth of 2.25%. Markets will be closely scrutinizing the company's performance in key areas, including its professional (Pro) customer segment, its online sales growth, and its ability to manage costs in an inflationary environment.

The immediate catalyst for the recent downward pressure appears to be Stifel's downgrade of Home Depot's stock from “Buy” to “Hold” on Friday. Along with the downgrade, Stifel also lowered its price target from $440 to $370, citing worries about potential stagnation, or even deterioration, within the home improvement retail landscape. This news triggered a premarket dip in Home Depot shares, setting a negative tone for the trading day.

While the consensus leans towards a “Buy” rating, with 68% of analysts recommending it, the 30% “Hold” rating and 2% “Sell” rating suggest a degree of caution. The average price target of $435.70 represents a significant upside from the current trading price, but recent market volatility and the Stifel downgrade may temper expectations.

Adding to the complexity, Home Depot recently secured a legal victory in a case involving employees' right to wear “Black Lives Matter” (BLM) on their work aprons. The 8th U.S. Circuit Court of Appeals sided with Home Depot's policy prohibiting such displays, upholding the company's right to maintain an apolitical workplace. While this ruling may have legal and social implications, its direct impact on the stock price is likely to be limited.

Broader economic factors are also exerting influence. The Dow Jones Industrial Average experienced a sharp decline recently, triggered by concerns about a weakening job market and persistent inflation risks following the end of a U.S. government shutdown. This market-wide volatility has undoubtedly contributed to the pressure on Home Depot's stock.

While the prevailing sentiment seems cautious, it's worth considering a contrarian perspective. It's possible that the market is overreacting to the Stifel downgrade and broader economic concerns.

Home Depot has consistently demonstrated its ability to adapt to changing market conditions and maintain profitability. The company's investments in its online platform, its supply chain, and its Pro customer segment could yield stronger-than-expected results in the long run.

Perhaps the market is too focused on short-term fluctuations and overlooking the underlying strength of the company. The steady Zacks Consensus Estimate for Home Depot’s fiscal 2025 earnings per share (EPS) at $15.03 suggests that even with a year-over-year decline of 1.4%, the company will still be a highly profitable enterprise.

The next few days will be crucial for Home Depot's stock. The Q3 earnings report will provide valuable insights into the company's current performance and its outlook for the future.