The world’s largest hardware chain continues to suffer from customers‘ reluctance to make big purchases and renovations. Home Depot had a decrease in sales and profits in the third quarter, but exceeded analysts‘ expectations. The US hardware chain operates 2,333 stores in North America and employs around 470,000 employees.

Sales decrease in Q3 In the third quarter, sales decreased by three percent to 37.7 billion US dollars, the US company announced in Atlanta on November 14, 2023. Net income declined by about 12 percent to 3.8 billion US dollars. Similar to the second quarter, customers have been more focused on smaller projects, so certain categories with higher prices came under pressure. On a comparable area, sales fell 3.1 percent compared to the same period of the previous year. Analysts had on average expected slightly worse values. Home Depot narrowed its annual forecast for sales and operating margin. Sales should now decline by 3 to 4 percent. For earnings per share, the hardware chain expects a decrease between 9 and 11 percent. Previously, the ranges were slightly wider at the upper and lower end.

Strong market position With its over 2,300 stores in the US, Canada and Mexico, Home Depot has the largest reach in retail for DIY and home improvement products. The next competitor, Lowe’s, has only about 1,700 stores. This size and dominant market position gives Home Depot advantages. The strong presence makes the company the first choice for do-it-yourself and professional customers. Even though Home Depot’s results fluctuate with the business cycle, its leading market position puts the hardware chain in a strong position when times get better again.

Dividend and stock buybacks After investing in its own business, the company prioritizes increasing its dividend and repurchasing shares with any excess cash. In the first half of the year, Home Depot generated a total of 10.5 billion US dollars in cash flow. The company returned most of this amount to shareholders through dividends and stock buybacks. Investors can therefore wait for bad cycles while enjoying their dividends. Since 2010, the dividend has been increased annually. The stock offers a dividend yield of 2.5%, 1% more than the S&P 500 with its 1.5%.

Home Depot stock chart – ISIN: US4370761029

Source: https://www.aktienscreener.com

Rating and technical view The stock price correction has made it more attractive. The paper comes with a P/E of 18, compared to over 20 a few months ago. The main competitor, Lowe’s, has a P/E of 26. The overall market, measured by the S&P 500, is trading at a P/E of 21.8. Chartwise, the breakout of the sideways range should be awaited.

Conclusion Home Depot indicated in its results that consumer hesitation was easing. The more attractive valuation, the strong dividend and the market-dominant position with few large competitors should make the stock attractive for long-term oriented investors.