A worthy solution in 2024 – Upper

While the market today is focused on Walmart’s (NYSE:WMT) impressive quarterly results, little attention is being paid to America’s most popular home improvement supermarket, Home Depot (NYSE:HD). This is unfortunate because the argument could be “constructed” (pun completely intended) that Home Depot symbolizes the country’s economic health, or lack thereof.

In other words, when Home Depot thrives, consumers spend and America’s financial juices flow. As a result, Home Depot’s results and future guidance suggest that the U.S. housing market could remain in recession for some time.

But that doesn’t necessarily mean the outlook is completely bleak or that Home Depot doesn’t deserve the capital it currently has available for investment.

“Year of Temperance”

Remember when Meta Platforms CEO Mark Zuckerberg called 2023 the company’s “Year of Efficiency”? Home Depot CEO Ted Decker went by a different name last year, but today’s investors may not be particularly pleased with the CEO’s choice of words.

“After three years of significant growth in our business, 2023 was a year of moderation,” Decker said in a statement.

If Zuckerberg’s “Year of Efficiency” meant strategic cost cutting, Decker’s “Year of Moderation” apparently conveyed the consternation of prospective homebuyers in 2023. Between stubborn inflation and soaring mortgage rates, last year wasn’t the most prolific one for America. Favorable housing market conditions.

The result was a fourth quarter where “temperance” was rampant. Specifically, Home Depot’s total sales decreased 2.9% from the previous year to $34.8 billion. Additionally, the company’s global comparable-store sales fell 3.5%, while U.S. comparable-store sales fell 4%.

Perhaps none of this is surprising given the difficult environment Home Depot had to navigate in the fourth quarter.

“One of (Home Depot’s) key issues continues to be the very weak housing market,” GlobalData Retail analyst Neil Saunders explained in a note to clients. “Traditionally people who move houses invest a lot of money in improvements, so this continues to take a lot of demand out of the market,” he added.

Brian Nagel, managing director and senior analyst at Oppenheimer, seemed uninterested in Home Depot’s quarterly results. In an interview with Yahoo!, Finance Live’s Nagel called Home Depot’s earnings report “pretty blatant” and identified that the company is still dealing with “post-pandemic dynamics.”

It’s possible that this “dynamic” contributed to Home Depot’s lackluster earnings results. Nagel tempered the criticism by acknowledging that the company was “very well managed” and still “robustly profitable.”

But today’s investors weren’t as enthusiastic as Home Depot reported fourth-quarter 2023 net income of $2.82 per diluted share, down 14.5% year-over-year.

Looking for hope in 2024

Reflecting on his boss’ “adjustment” statement, Home Depot Chief Financial Officer Richard McPhail said in the earnings call: “We expect there will still be pressure on our business in 2024… We “We plan on continuing adjustments throughout the year,” he warned.

Home Depot therefore calls for comparable store sales to decline “approximately” 1% in 2024.

This may not be the worst result after same-store sales fell 3.5% in the fourth quarter. But the market was in no mood today to tolerate “vulgar” guidance. Moreover, Saunders offered hope for a recovery in the housing market this year.

“Fortunately, there is evidence that the housing market will recover slightly in 2024,” Saunders said in a note to clients.

In a similarly optimistic vein, analysts at Wedbush Securities noted a “rebounding industry environment with healthy professional and general employment, solid wage growth, and homeowner spending power driven by continued home price appreciation.” If this continues into 2024, it will be positive for Home Depot and the overall U.S. economic environment.

With this, Wedbush Securities analysts raised their HD stock rating from Neutral to Outperform. This is a bold upgrade during an uncertain time for the U.S. housing market.

There’s another sign that Home Depot is ready to weather the perceived economic storm. The company’s board of directors approved a 7.7% increase in its quarterly dividend to $2.25 per share. This equates to an annual dividend of $9 per share, or a 2.48% yield based on the stock price of $363.

Really troubled companies don’t usually raise their dividends like that, so this is another check mark in the positive column for Home Depot. So while everyone and his uncle are poring over Walmart’s earnings report, feel free to take a look at Home Depot stock, collect some decent dividends, and hope for a recovery in American housing.

disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.