We heard enough from Home Depot about next year and beyond to still believe
Jim Cramer has said Home Depot is the best way to play lower interest rates, and Tuesday’s trading in the stock shows us why. To Jim’s surprise, shares of the home improvement retailer ran as high as $356 each in the morning, despite management releasing disappointing guidance for the company’s full-year fiscal 2026. Home Depot “should be down big,” Jim said on Tuesday’s Morning Meeting as shares were up modestly. If the Federal Reserve were not expected to cut rates on Wednesday afternoon, an outlook like this would be sold heavily, he explained. The stock did turn lower by more than 1% later in Tuesday’s session. That was not nearly as much as Jim had feared. Lower rates are “just gigantic for some of our stocks,” Jim said, putting Home Depot at the top of the list due to its dependence on mortgage rates and the housing market. Mortgages have not come down in a meaningful way, even after two previous rate cuts this year and three last year. Elevated mortgages have stalled housing turnover, which hurts Home Depot on the pro side — with homebuilding and the need for large-scale renovations tepid — and on the do-it-yourself side. Home Depot has said it’s about 55% pro and 45% consumer. “Households are sitting on more dry powder to use for home improvement projects than ever before, and in the past several years have tapped this equity at lower levels than usual during this period of high interest rates,” Home Depot Chief Financial Officer Richard McPhail said during Tuesday’s investor and analyst conference after providing the Street with a preliminary look at what the company forecasts for next year. Home Depot said it expects fiscal 2026 sales growth of between 2.5% to 4.5%. At the midpoint of 3.5%, the outlook missed estimates of 4.5% growth. Same-store sales — also referred to as comparables or comps in the retail industry — were seen in the range of flat to up 2%. The midpoint of 1% missed estimates for 2.3% growth. The company sees adjusted operating margin of approximately 12.8% to 13%, which at the midpoint matched estimates for 12.9%. To be sure, Home Depot reported a rough fiscal 2025 third quarter on Nov. 18 and reduced its full-year 2025 guidance. Management on Tuesday reiterated its 2025 outlook. And, in addition to the new fiscal 2026 numbers at the conference, the company looked even further out with what it called a “market recovery case,” which painted a baseline of what business could look like once a housing recovery were to take hold. In its so-called market recovery case, Home Depot sees total sales growth of about 5% to 6%; total comps growth of 4% to 5%; operating profit growth faster than sales growth; and diluted earnings-per-share growth of roughly mid-to-high single-digits on a percentage basis. “While housing is currently pressured, we believe the fundamental supports for long-term home improvement demand are strong and are in a much stronger position than they were at the beginning of the last housing…
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