Wall Street analysts are happy about one of our retail stocks, but worried about another. Following the news about Home Depot, Telsey Advisory Group, a leader in retail industry analysis, upgraded Home Depot stock to an Outperform rating of Buy on Friday. The research firm also raised its 12-month price target to $455 per share from $360, suggesting an increase of nearly 14% from Thursday’s closing price. Home Depot is scheduled to report third-quarter results before the opening bell on Tuesday. HD YTD Mountain HD stock price year-to-date performance. Telsey said analysts expect third-quarter sales to “continue to be soft,” but they easily compare this with lower mortgage rates, continued hurricane recovery efforts and strong post-pandemic demand. As a result, we expect solid profit and revenue growth in 2025. Telsey analysts said these catalysts, combined with Home Depot’s strong business base, will help the company continue to gain market share in the home improvement space. They highlighted further growth of the company’s professional business, which supports larger and more complex projects. Telsey expects Home Depot to outperform the S&P 500 in 2025. The stock is up nearly 17% this year, but is currently below the benchmark index’s 25%-plus gain in 2024. The big picture Telsey’s growing confidence in Home Depot comes on the back of economic resilience and easing inflation. The Federal Reserve’s monetary policy easing, including Thursday’s additional interest rate cuts, should lead to lower mortgage prices and a stronger housing market. Home builders rely on Home Depot, and so do new homeowners working on renovation projects. Home Depot stock rose more than 2.5% this week as the broader market rose in the wake of the early conclusion of the presidential election. Stocks have generally trended higher since August’s disappointing results and outlook. Bottom line: Jim Cramer has been claiming for months that Home Depot would be the biggest beneficiary of Fed easing. But bond yields remained high before Thursday’s rate cut, pushing back the trigger as mortgage holdings remained high. Jim said during Friday morning’s meeting that Home Depot stock could eventually reach Telsey’s $455 price target, given that there’s a lot to like about the company right now. The club’s price target is $420. Indeed, there is typically a 6-9 month lag between the Fed’s first rate cut (in September) and the housing market improving. That means investors must be patient. Jim said he doesn’t want to sell Home Depot stock after seeing next week’s results. Although he acknowledged that “it’s not going to work out,” he stressed that “the important thing is the outlook.” Following the Best Buy news, Citi lowered its price target on Best Buy to $109 from $115 on Friday, while maintaining a buy rating on the stock. BBY YTD Mountain Best Buy stock’s year-to-date performance. Analysts say President-elect Donald Trump’s promised tariffs on China are a “short-term overhang” for retailer Best Buy, which has significant exposure to imports from the world’s second-largest economy. claims. That’s not all bad. Citi said its artificial intelligence-driven technology replacement cycle, which should boost revenue and same-store sales as customers turn to Best Buy to upgrade their smartphones and computers, is “maintained.” The Big Picture Under the Trump administration, increasing tariffs, especially on China, are expected to be part of the economic strategy. Much of the electronics retailer’s inventory is manufactured in China, so any new tariffs on Chinese imports would pose a challenge for Best Buy. Best Buy stock is down about 2.5% this week. Ahead of the election, we trimmed our position in Best Buy and booked profits after the stock rebounded from its Aug. 5 low on optimism about interest rate cuts. Conclusion Despite Citi’s concerns, we remain committed to Best Buy. We continue to believe that the technology replacement cycle is a tailwind for retailers as consumers seek to purchase the latest AI-powered gadgets. If home sales pick up again, Best Buy should be well-positioned to benefit from lower interest rates. That would encourage people to buy electronics, TVs and big-ticket items sold by Best Buy. This is the same thing we think will drive purchases of Home Depot and its home building and remodeling products. Best Buy will report quarterly results on November 26th. (Jim Cramer’s Charitable Trust is Long HD (BBY). See the complete list of stocks here.) As a subscriber to Jim Cramer’s CNBC Investing Club, you can receive trade alerts. Before Jim trades. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. 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Monday, August 12, 2024, at a Home Depot store in Washington, DC, USA. Home Depot is scheduled to announce its financial results on August 13th.
Ting Sheng | Bloomberg | Getty Images
Wall Street analysts are happy about one of our retail stocks, but worried about another.
