Home Depot’s (HD) stock has been downgraded by HSBC Global Research to Reduce from Hold while retaining the 12-month target price of $323.
HD shares fell 0.75% in premarket trading Wednesday.
The downward revision comes amid waning sales momentum, which is expected to weigh on the retailer’s short-term profitability. Consequently, the broker also reduced its earnings estimates for HD.
“Operating cost inflation is growing faster than sales, putting pressure on margins and overall profitability,” analysts at HSBC said in a note.
“Accordingly, we lower our FY2025e and FY2026e EPS to USD15.10 and USD16.33, from USD15.98 and USD16.91, respectively.”
HSBC's analysis also highlighted that despite a nearly 50% surge in home prices recently, there has been a significant decrease in housing transactions. This downturn has contributed to Home Depot (NYSE:HD)'s fifth consecutive quarter of negative comparative results.
In the fourth quarter, the company experienced a 2% drop in comparable transactions and a 1.3% reduction in the average purchase amount. Further, HD has been facing a continued decrease in lumber prices compared to the previous year.