Home Depot: Navigating Macro Headwinds with Pro Credit and Strategic Acquisitions

Publication Date: June 22, 2025

We maintain a 'Hold' rating on Home Depot (HD) with a price target of $343. While the company demonstrates strong long-term fundamentals, current macroeconomic headwinds, particularly within the housing market, suggest limited near-term upside. The stock appears fairly valued at its current levels, warranting a cautious approach for investors seeking immediate significant gains.

Strategic Growth Drivers: Pro Credit and Margin Reacceleration

Despite the prevailing challenges, Home Depot is strategically positioned for future growth, with earnings per share (EPS) growth anticipated to reaccelerate significantly in fiscal year 2026. This reacceleration is expected to be primarily driven by several key catalysts that we believe are currently underappreciated by the broader market consensus:

• Increased Pro Credit Adoption: A significant focus for Home Depot is the expansion of its Pro customer segment. Enhanced credit offerings tailored for professional contractors and businesses are expected to boost sales volume and improve customer loyalty within this high-value segment. The 'Pro' customer typically makes larger, more frequent purchases, contributing disproportionately to revenue and margin growth.
• Margin Leverage: As sales to the Pro segment grow, Home Depot is poised to benefit from improved operational efficiency and scale. This leverage, combined with disciplined cost management, is expected to drive margin expansion across the business. The company's robust supply chain and extensive store network provide a strong foundation for optimizing profitability.
• Return of Share Buybacks: The resumption of share repurchase programs, once macro conditions stabilize and cash flow generation strengthens, could provide additional support to EPS. Share buybacks reduce the number of outstanding shares, thereby increasing EPS and potentially boosting shareholder value.

The SRS Distribution Acquisition: A Long-Term Moat with Execution Risk

The acquisition of SRS Distribution represents a pivotal strategic move for Home Depot, significantly enhancing its reach and capabilities within the professional contractor market. This acquisition, coupled with the ongoing integration of Pro services, is expected to create a formidable long-term competitive moat. SRS Distribution's established network and specialized offerings complement Home Depot's existing Pro business, creating a more comprehensive solution for professional customers.

However, it is crucial to acknowledge the inherent execution risk associated with such a large-scale integration. Successful integration requires careful planning, effective communication, and seamless operational alignment to realize the full synergistic benefits. Any missteps in this process could temporarily impact financial performance.

Housing Market Constraints and Investment Patience

The current housing market environment, characterized by high interest rates, elevated home prices, and affordability constraints, poses a significant headwind for Home Depot. These factors can dampen demand for home improvement projects, particularly larger discretionary ones. While the long-term outlook for housing remains positive, the near-term challenges necessitate a patient approach for investors.

Given these dynamics, we advocate for patience rather than aggressive buying. Investors should monitor key housing market indicators, Home Depot's Pro segment performance, and the progress of the SRS Distribution integration. A disciplined investment strategy, focusing on long-term value creation, is advisable in the current environment.

Investment Implications

For investors, Home Depot remains a quality company with a strong market position. The current 'Hold' rating reflects a balance between its long-term growth potential and the near-term macro challenges. Investors already holding HD shares may consider maintaining their positions, while those looking to initiate a new position might wait for clearer signs of housing market recovery or more definitive positive catalysts. The company's focus on the Pro segment and strategic acquisitions are positive long-term indicators, but the path to reaccelerated growth may be uneven in the short term.