Skip to Content
Stock Analyst Update

Home Depot's Growth Contingent on COVID-19 Behaviors

We plan to increase our $210 fair value estimate but still see shares as rich.


Home Depot (HD) reported banner performance, banking 25% comp and sales growth in its fiscal fourth quarter. The print offered above-22% comps for all three months and balanced comp improvement, with ticket rising 10.8% and transactions up 12.6%. The firm continues to take share of the building materials and garden supply industry, which grew at a high-teens pace over the same period, indicating merchandising success at Home Depot, and supporting our wide-moat rating. However, costs rose faster than expected, leading to an operating margin decline of 50 basis points, to 12.7%, hurt by a plethora of exacerbated costs across the cost of goods sold and the operating expense lines (mix, shrink, logistics, COVID-19 spend). We believe some of these headwinds could persist in the year ahead. As such, while we plan to raise our $210 per share fair value estimate by a mid-single-digit rate, we still view shares as rich even after declining post report.

The company noted that if the demand cadence that was captured late in 2020 continued through 2021, Home Depot would likely see flat to slightly positive comp sales growth and an operating margin of more than 14%. While the full-year 2021 comp outlook is lower than our mid-single-digit forecast, the operating margin is better than the roughly 13.5% we estimated, and as such, we don’t plan much change to our $12.36 2021 EPS estimate. However, given the still strong read on first-quarter demand, we believe this implies negative comp potential over the latter three quarters of 2021 as COVID-19-related demand recedes (assuming the vaccine is largely rolled out nationally in the first half). The Feb. 23 update doesn’t offer us any impetus to alter our long-term outlook that calls for 3% comp and 4% sales growth (on average) along with operating margins that normalize around 15% over the next decade, as long-term operating margin gains are bound by strategic investments to keep Home Depot the most-favored home improvement retailer.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.