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While the most recent economic print delivered encouraging data on key metrics such as inflation, investors are nevertheless concerned about the prospects of a recession. Frankly, it’s a non-zero-probability event, which subsequently bolsters the case for home improvement retail specialist Home Depot (NYSE:HD). It’s not exciting in the least. However, when investors face doubt, they can ride out the storm, thanks to its predictable business. I am bullish on HD stock due to its proven track record.
HD Stock Plays the Role of Old Faithful
Although hardly anybody would mistake Home Depot as a riveting must-have trade, the stock remains relevant. Amid the hype of the latest innovations in technology, the company serves basic needs that never change: walls that need repainting, pipes that need resealing, and so on. Recently, its relevance again took the spotlight with the disclosure of its Q3-2023 earnings report.
According to TipRanks reporter Shrilekha Pethe, Home Depot reported diluted earnings per share of $3.81, which admittedly slipped below the EPS of $4.24 during the same quarter last year. However, the latest result beat analysts’ consensus estimate of $3.75. On the top line, the retailer’s sales declined by 3% year-over-year to $37.7 billion. Still, it exceeded the consensus view of $37.6 billion.
Management brought up some interesting points — some good, some not so great. Home Depot Chair, President, and CEO Ted Decker remarked that its quarterly performance landed in line with the company’s expectations. On the positive side, Decker witnessed continued customer engagement with smaller projects. However, the head executive admitted incurring pressure “in certain big-ticket, discretionary categories.”
As a result, Home Depot responded with a narrower guidance for Fiscal Year 2023, expecting sales and comparable sales to decrease between 3% and 4% on a year-over-year basis. In addition, the leadership team sees diluted earnings declining by 9% to 11% compared to the prior year.
At first, some of the commentary might seem discouraging for HD stock. However, the decline in the discretionary categories is not exclusive to Home Depot. More importantly, the underlying home improvement sector isn’t discretionary in the least: when something breaks, you need to fix it (or pay someone else to fix it).
Simple Logic May be a Hidden Catalyst for Home Depot
As to the last point above, the main reason why investors appreciate HD stock is its underlying predictability. In many ways, Home Depot enjoys a captive audience. With Murphy’s Law (meaning anything that can go wrong will go wrong) practically guaranteed to visit misfortunate souls every day across the country, demand might not skyrocket but it will likely stay consistent. However, the company may also benefit from a hidden catalyst.