After Earnings, Is Home Depot Stock a Buy, a Sell, or Fairly Valued?

Home Depot HD released its first-quarter earnings report on May 19. Here’s Morningstar’s take on Home Depot’s earnings and stock.

Key Morningstar Metrics for Home Depot Stock

• : $325.00
• : ★★★

• Morningstar Economic Moat Rating

  : Wide

• Morningstar Uncertainty Rating

  : Medium

What We Thought of Home Depot’s Q1 Earnings

Home Depot’s first-quarter results included same-store sales growth of 0.6% and an adjusted operating margin of 12.3%. The firm’s 2026 outlook is unchanged, calling for same-store sales growth of flat to 2%, an adjusted operating margin of 12.8% to 13.0%, and adjusted EPS growth of flat to 4%.

Why it matters: Consumers feel the pinch of inflation and higher interest rates, so transactions have declined over the past year. Customers are currently focused on need-based over discretionary projects, but large-ticket transactions should return when the macro environment stabilizes.

• Still, Home Depot is taking share, as evidenced by 4.8% sales growth, which eclipsed average industry growth of 4% in the quarter. SRS was likely a key contributor to this, as professional sales outpaced do-it-yourself and are on track to deliver mid-single-digit organic growth in 2026.
• Moreover, we think recent acquisitions under the SRS umbrella help mute demand cyclicality by focusing on repair, replace, and remodel efforts versus new construction, which tends to be swayed by financing costs. The last time the 10-year yield was above current levels was early 2025.

The bottom line: We are lowering our fair value estimate for Home Depot to $325 from $335 per share after incorporating the updated Morningstar WACC framework. As a result, we raised our WACC estimate to 7.5% from 7.0%. The change does not reflect a new view of the business, but a more granular expression of our existing risk assessment.

• Shares trade at 10% discount, a bargain not broached since 2020, and we are becoming more constructive on ownership after a 12% year-to-date decline. We think investors remain concerned that same-store sales could stay flat over the rest of the year, thereby constraining profits.

We see long term-sales growth of around 4.5% on low-single-digit same-store sales and expansion of the pro distribution channel, which could also uplift cross-selling opportunities. Still, investments to support such growth are likely to keep operating margins under 15%.

Fair Value Estimate for Home Depot

With its 3-star rating, we believe Home Depot stock is fairly valued compared with our long-term fair value estimate of $325 per share. Additionally, after incorporating modest first-quarter results (same-store sales growth of 0.6% and adjusted EPS of $3.43) that were in line with our expectations, we are largely maintaining our 2026 outlook. The firm reiterated its 2026 forecast, which included 2.5%-4.5% sales growth, an adjusted operating margin of 12.8%-13%, and EPS growth of flat to 4%. Our updated forecast includes 3.9% sales growth and 1.5% EPS growth in fiscal 2026, along with a 12.8% adjusted operating margin (down 10 basis points).

Read more about Home Depot’s fair value estimate.

Economic Moat Rating

We assign Home Depot a wide economic moat. As the largest global home improvement retailer, Home Depot possesses a competitive edge, in our view, owing to its brand intangible asset and cost advantage. Over the past 10 years, Home Depot’s sales growth has outpaced the building materials and garden equipment and supplies dealer industry’s average growth of 4.3% by 230 basis points annually (based on US Census Bureau data), indicating the brand’s ongoing relevance.

Read more about Home Depot’s economic moat.

Financial Strength

Home Depot has had no concerns tapping the credit markets to finance the business in recent years. The firm raised $10 billion in debt to finance part of the $18.25 billion SRS Distribution acquisition in 2024. It also refinanced its credit facilities in 2025. At the end of 2025, Home Depot held total debt of nearly $56 billion.

Free cash flow to the firm has averaged about 5% of sales over the past three years, supporting higher leverage, and we expect the company to stay within its targeted adjusted debt/EBITDAR metric of 2 times over the long term. The balance sheet’s $28 billion in net property, plant, and equipment provides an asset base to secure debt if necessary. Given Home Depot’s ability to generate tremendous free cash flow (we forecast an average of $21 billion in 2026-35), we expect management will have no problem facilitating dividend payments and remaining at or above its long-term dividend payout ratio target of 55%.

Read more about Home Depot’s financial strength.

Risk and Uncertainty

We give the company a Medium Uncertainty Rating, owing to its strong brand recognition, which has helped stabilize sales through the cycle. Home Depot’s sales are largely driven by greater consumer willingness to spend on category goods in both necessary and discretionary home purchases. Now, with the MRO and pro businesses (HD Supply, SRS, GMS, and Mingledorff’s), revenue could be less cyclical, as the maintenance side of the business can prove to be more consistent. Although new competitors could set up shop on Home Depot’s turf, we think new players would be hard-pressed to offer similarly competitive product prices, as they likely wouldn’t have vendor relationships of the same magnitude.

In our opinion, Home Depot has minimal environmental, social, and governance risk. Product sourcing, potential data theft, and consumers’ shift in preferences to sustainable product offerings are relevant, but Home Depot should be able to adapt, and we do not see any material financial impact from these factors. We believe the most significant near-term risks are a continuation of slow turnover in the real estate market and potential tariff impacts. Low home inventories for sale remain problematic, aggravated by higher-than-optimal mortgage rates (a 30-year loan remained near 6.4% in mid-May 2026).

Read more about Home Depot’s risk and uncertainty.

HD Bulls Say

• Home Depot’s continued investments in supply chain and merchandising should improve productivity and support its leadership position in the home improvement market.
• The firm has returned $71 billion to its shareholders through dividends and share buybacks over the past five years, more than 20% of its market cap. We forecast Home Depot will return another $65 billion to owners over the next five years.
• The large professional market is $300 billion. As Interline and HD Supply make up a low-double-digit share, SRS reaches these specialists, and GMS joins the mix, share is up for grabs.

HD Bears Say

• Weak consumer spending, perpetually higher interest rates, or an economic downturn could hinder sales for home improvement projects and affect Home Depot’s growth.
• Productivity improvement gains could prove more challenging to achieve, as simpler efforts have already borne fruit. New initiatives could face some implementation risks, creating inconsistent profitability.
• As Home Depot digests more than one sizable acquisition, integration risk remains, and management could be distracted by idiosyncratic issues at larger tie-ups like SRS or GMS.

This article was compiled by Jillian Moore.