Home Depot: Compounder Now Pricing In Mild Recession; Initiate at Buy

Initiation (HD US) (Buy)

Highlights

• Home Depot is a compounder likely to grow EPS at 10%+

• Shares are down 29% from peak, and at ≤20x FY23 EPS

• Low end of outlook sees sales fall 5% and EPS fall 13%

• We believe shares are attractive even with a mild recession

• We see 47% upside (11.4% annualized). Buy

Introduction

We are initiating a Buy rating on Home Depot, as an attractive long-term buy provided there is no major U.S. recession.

Home Depot’s share price has fallen 29% since its peak at the end of 2021. Shares fell on the day Q1 FY23 results were released (Tuesday, May 16), but have since more than recovered:

Home Depot Share Price (Last 5 Years)

Source: Google Finance (18-May-23).

Home Depot is a long-term compounder with a track record of mid-teens plus EPS CAGRs. Long-term sales CAGR is likely to exceed mid-single-digits, thanks to its strong customer base and competitive advantages, with GDP+ growth in core DIY sales and even faster growth from Pro (including MRO). Gross Margin has been broadly stable, and natural ope…