Melius Research's analysts believe that the existing home market is poised for improvement, which bodes well for Home Depot and similar companies. They note that 58% of Wall Street analysts share a buy rating for Home Depot, while 38% recommend holding and the remainder suggest selling.
The analysts attribute their optimism to an expected rise in existing home supply, which is crucial for repair and remodeling demand. They highlight that the current high-interest rate environment is negatively impacting new home sales, leading to low consumer confidence.
The 'lock-in' effect, where homeowners are reluctant to sell due to favorable mortgage rates, is beginning to ease, with a decrease in homeowners with sub-4% mortgages. Melius sees this trend as a potential catalyst for increased existing home sales and repair demand over the next few years. While they maintain a cautious stance on new homebuilders like D.R.
Horton and Lennar, they express confidence in Home Depot, especially as the stock is trading near its lowest levels since October 2023 and below its five-year average valuation. They suggest that any future decline in interest rates could lead to a surge in buyers, making Home Depot an attractive investment at current levels.
The analysts recommend that investors consider establishing a position in Home Depot, viewing it as a stock that may have found a bottom and could rebound as market conditions improve