After Earnings, Is Home Depot Stock a Buy, a Sell, or Fairly Valued?

Home Depot HD released its fourth-quarter earnings report on Feb. 24. Here’s Morningstar’s take on Home Depot’s earnings and stock.

Key Morningstar Metrics for Home Depot

• Fair Value Estimate

  : $335.00

• Morningstar Rating

  : ★★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : Medium

What We Thought of Home Depot’s Q4 Earnings

Home Depot eked out comparable sales growth of 0.3% in the fourth quarter, aided by 2.4% ticket growth but hurt by a 1.6% transaction decline. Weak top-line results led to cost deleverage, surfacing an adjusted operating margin that fell 120 basis points to 10.5%, slightly ahead of implied guidance.

Why it matters: Key drivers of home improvement spending, including home prices and turnover, remain muted. With no near-term catalyst in sight, the firm expects the market to range from a 1% decline to a 1% increase, a third year of an industry seeking growth.

• Still, we think Home Depot is positioned to take share, even in a difficult environment. The firm remains focused on removing friction for its consumers across issues like order management, delivery, and communication, which should bolster its brand intangible asset.

The bottom line: We view shares as rich. To justify the market price, the firm would have to return to a 15% operating margin, which we don’t see as feasible in the near-term, given the macro environment.

• While the recently acquired distribution businesses act as a drag on operating margin over the near term, we surmise Home Depot will be able to extract additional efficiencies from rising scale and cross selling opportunities beyond 2026, allowing the metric to rise to a 14% average over time.

Between the lines: The back half of 2026 could prove to be favorable. The firm will be lapping minimal benefit from storm activity in 2025 and September’s acquisition of GMS, so comparisons will be easy.

Fair Value Estimate for Home Depot

With its 2-star rating, we believe Home Depot stock is moderately overvalued compared with our long-term fair value estimate of $335 per share. Fourth-quarter same-store sales of 0.4% were ahead of our forecast 0.5% contraction, and the adjusted operating margin of 10.5% was 30 basis point better than we expected. The firm reiterated its 2026 forecast, which included 2.5%-4.5% sales growth, an adjusted operating margin of 12.8%-13%, and EPS growth of flat to 4%. Our updated forecast includes sales and EPS growth of 3.6% in fiscal 2026 along with a 12.9% adjusted operating margin (down 10 basis points).

Read more about Home Depot’s fair value estimate.

Economic Moat Rating

We assign Home Depot a wide moat. As the largest global home improvement retailer, the firm possesses a competitive edge owing to its brand intangible asset and cost advantage, in our view. Over the past 10 years, Home Depot’s sales growth has outpaced the building materials and garden equipment and supplies dealer industry’s average growth of 4.3% by 230 basis points annually (based on the US Census Bureau data), an indication of the brand’s ongoing relevance.

We expect Home Depot’s strong brand equity and extensive scale should enable incremental market share gains in a highly fragmented $1.1 trillion North American home improvement market, on top of the roughly 15% market share it has amassed thus far (given roughly $155 billion in sales in 2025).

Read more about Home Depot’s economic moat.

Financial Strength

Home Depot has had no concerns with tapping credit markets to finance the business in recent years. The firm was able to raise $10 billion in debt to finance part of the $18.25 billion SRS Distribution acquisition in 2024. It also refinanced its credit facilities in 2025.

At the end of 2025, Home Depot held debt of nearly $56 billion. As a result of higher leverage from the SRS acquisition, management has halted share repurchases; however, we model share repurchases to resume at the end of 2026, as Home Depot works its leverage metrics back toward 2 times after digesting the GMS transaction in 2025. Including the impact of recent acquisitions, EBIT is forecast to cover the net interest expense 9 times at the end of 2026.

Given Home Depot’s ability to generate tremendous free cash flow (we forecast an average of $20 billion in 2026-35), we expect management will have no problem facilitating dividend payments and remaining at or above its long-term dividend payout ratio target of 55%.

Read more about Home Depot’s financial strength.

Risk and Uncertainty

We give the company a Medium Uncertainty Rating, owing to its strong brand recognition, which has helped stabilize sales through the cycle. Home Depot’s sales are largely driven by greater consumer willingness to spend on category goods in both necessary and discretionary home purchases. In uncertain economic times, consumers remain in their homes, embarking on improvement projects, boosting DIY revenue. Alternatively, when home prices rise, the wealth effect generates a psychological boost to consumers, reinvigorating professional sales thanks to a higher willingness to spend on big home improvement projects. Now, with the MRO and pro businesses (HD Supply, SRS, and GMS), revenue could be less cyclical, as the maintenance side of the business can prove to be more consistent.

Although new competitors could set up shop on Home Depot’s turf, we think new players would be hard-pressed to offer similarly competitive product prices, as they likely wouldn’t have vendor relationships of the same magnitude. Ultimately, the biggest brands in home retailing will still want the biggest partners for distribution, leaving a new peer in a precarious position when it comes to acquiring enough of the most sought-after products to satisfy demand.

Read more about Home Depot’s risk and uncertainty.

HD Bulls Say

• Home Depot’s continued investments in supply chain and merchandising should improve productivity and support its leadership position in the home improvement market.
• The firm has returned $71 billion to its shareholders through dividends and share buybacks over the past five years, nearly 20% of its market cap. We forecast Home Depot will return more than $70 billion to owners over the next five years.
• The large professional market is $300 billion. As Interline and HD Supply make up a low-double-digit share, SRS reaches these specialists, and GMS joins the mix, share is up for grabs.

HD Bears Say

• Weak consumer spending, higher interest rates, or an economic downturn could hinder sales for home improvement projects and affect Home Depot’s growth.
• Productivity improvement gains could prove more challenging to achieve, as simpler efforts have already bore fruit. New initiatives could face some implementation risks, creating inconsistent profitability.
• As Home Depot digests more than one sizable acquisition, integration risk remains, and management could be distracted by idiosyncratic issues at larger tie-ups like SRS or GMS.

This article was compiled by Rachel Schlueter.