Where Will Home Depot Stock Be in 1 Year?

The real estate sector has been dragged down by high interest rates over the past few years. Higher rates have affected many companies in many industries that are directly or indirectly impacted by a slow real estate market, including home improvement companies like Home Depot (NYSE: HD).

Some companies are already feeling some positive impacts from the interest rate cuts the Federal Reserve imposed in September, and some stocks have gotten love from investors who are feeling confident about rebounding businesses and further rate cuts.

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Home Depot has a long track record of excellence, and it pays an attractive dividend. That has kept investors happy despite pressure on its business, and Home Depot stock is up 14% over the past year. Let's see how things might play out over the next 12 months.

Managing through tough times

As the largest home improvement chain in the world, with 2,300 stores in North America, Home Depot is susceptible to changing real estate trends. Although it's typically reliable for steady growth and high profitability, it has struggled with high mortgage rates, which have trickled down to fewer homes on the market, fewer home sales, and less spending on home improvement.

Home Depot's comparable sales (comps) were down 1.3% in the 2024 fiscal third quarter (ended Oct. 27), and earnings per share declined to $3.67 from $3.81 the previous year. However, there was a lot of strength in the quarter. Total revenue increased 6.6% year over year, comps were positive in some regions, and digital sales increased 4%.

The quarter was better than expected, and management raised its full-year outlook for revenue from a 2.5% to 2.5% increase to a 4% increase, comps from a 3% to 4% decline to a 2.5% decline, and EPS adjusted for 53 weeks from a 1% to 3% decline to a 1% decline. It reports fourth-quarter and full-year earnings on Feb. 19.

If those trends continue, comps and EPS could be back on the rise in 2025.

Investing in new opportunities

Management has taken several steps to improve its e-commerce distribution network and expand its opportunities despite the challenging operating environment. It has made several acquisitions over the past few years that provide it with new revenue streams and a wider audience, as well as broaden its product assortment. Last year, it acquired specialty home improvement company SRS Distribution for $18 billion, and it says this expands its addressable market by $50 billion.

Home Depot has been upgrading its delivery network for faster shipments and a higher same-day delivery rate, and it discovered that customers weren't aware of all the delivery options. It updated the website to better reflect all the options and launched a marketing campaign to communicate the enhanced services, and it has seen an uptick in engagement and higher conversions.

Follow the interest rates

How Home Depot performs over the next year will at least partially, if not largely, depend on what happens with interest rates, mortgage rates, and the real estate market. There were initial signs of improvement in the sector when interest rates first came down, but trends have been up and down since then.

There are only so many things Home Depot can do to stay strong in the face of external headwinds, and it might continue to ride out this phase until the landscape is more favorable. The actions that management has implemented to upgrade digital services and widen its customer base should lead to some improvement that could offset continued pressure if it remains.

A year from now, Home Depot could be reporting comps growth and higher profits, but even if it doesn't manage those feats in 2025, the market could continue to reward its stock if it beats expectations. I wouldn't expect high gains in 2025, but the best-case scenario is that the business rebounds and Home Depot stock beats the market. In any event, investors can expect an increase in its excellent dividend.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool has a disclosure policy.