{"id":3463,"date":"2026-05-22T03:59:29","date_gmt":"2026-05-22T03:59:29","guid":{"rendered":"https:\/\/www.fintechpulse8.com\/?p=3463"},"modified":"2026-05-22T03:59:29","modified_gmt":"2026-05-22T03:59:29","slug":"morgan-stanley-flags-major-home-depot-opportunity-ahead","status":"publish","type":"post","link":"https:\/\/www.fintechpulse8.com\/?p=3463","title":{"rendered":"Morgan Stanley flags major Home Depot opportunity ahead"},"content":{"rendered":"<p><\/p>\n<p>I have been watching the housing market do something unusual for the better part of two years \u2014 stand completely still. <\/p>\n<p>Mortgage rates stay elevated. Existing homeowners won&#8217;t sell. Buyers can&#8217;t afford to buy. And yet Home Depot (HD), the retailer most directly wired to housing activity, keeps the lights on and the cash flowing.<\/p>\n<p>That paradox is exactly what Morgan Stanley&#8217;s latest note on Home Depot is trying to explain.<\/p>\n<p>The firm maintained its overweight rating and $420 price target on Home Depot (HD) in a note shared with me at TheStreet following the company&#8217;s first-quarter fiscal 2026 results. <\/p>\n<p>These results were, by everyone&#8217;s admission, including Morgan Stanley&#8217;s, unremarkable. HD is down 9.14% year to date, compared with the S&amp;P 500&#8217;s 8.58% gain, according to Yahoo Finance. The stock is being priced for a housing market that never recovers.<\/p>\n<p>Morgan Stanley&#8217;s thesis is that this discount is an opportunity. &#8220;A turnkey stock without the turn,&#8221; the firm called it.<\/p>\n<h2>Home Depot&#8217;s Q1 2026 results: solid execution in a frozen housing market<\/h2>\n<p>Home Depot reported the following first-quarter fiscal 2026 results on May 19, according to the company&#8217;s earnings release:<\/p>\n<ul>\n<li>Net sales of $41.8 billion, up 4.8% year over year<\/li>\n<li>Comparable sales up 0.6%; U.S. comparable sales up 0.4%<\/li>\n<li>Adjusted diluted EPS of $3.43, versus $3.56 in the prior-year period<\/li>\n<li>Full-year fiscal 2026 guidance reaffirmed across all metrics<\/li>\n<li>Total sales growth guidance of 2.5% to 4.5%<\/li>\n<li>Comparable sales growth of approximately flat to 2.0%<br \/>\nSource: Home Depot Q1 Fiscal 2026 Results\n<\/li>\n<\/ul>\n<p>CEO Ted Decker kept the tone measured. &#8220;The underlying demand in our business was relatively similar to what we saw throughout fiscal 2025, despite greater consumer uncertainty and housing affordability pressure,&#8221; Decker said.<\/p>\n<p>The EPS beat, such as it was, came from SG&amp;A performance \u2014 approximately 40 basis points better than expected \u2014 which helped offset a gross margin decline of 77 basis points year over year, according to Morgan Stanley&#8217;s note.<\/p>\n<p align=\"center\"><strong>Related: Home Depot, Lowe\u2019s hidden anti-theft tactic angers shoppers<\/strong><\/p>\n<p>The firm noted that the Street mis-modeled the gross margin contraction relative to SG&amp;A deleverage, meaning the underlying print was actually in line with Home Depot&#8217;s own expectations. <\/p>\n<p>Q2 2026 gross margin is expected to decline by approximately 25 basis points year over year, given the Q1 decline of 77 basis points and management&#8217;s guidance that the first-half gross margin will decline roughly 50 basis points in total.<\/p>\n<figure>\n<p>                        <img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.thestreet.com\/.image\/NDA6MDAwMDAwMDAzMDQ5NjU0\/home-depot-ahead-of-earnings-figures.jpg?profile=rss\" height=\"675\" width=\"1200\"><figcaption>Home Depot is currently trading at approximately 19.5 times next 12 months price-to-earnings, roughly a 7% discount to the S&amp;P 500.<\/p>\n<p>Bloomberg via Getty Images<\/p>\n<\/figcaption><\/figure>\n<h2>The Home Depot traffic and ticket debate: what the numbers actually say<\/h2>\n<p>The detail in Morgan Stanley&#8217;s note that deserves the most attention is the traffic and ticket analysis.<\/p>\n<p>Traffic declined 1.3% in Q1. That was a deceleration of approximately 80 basis points on the two-year stack and 20 basis points on the three-year stack. Ticket growth of 2.2% also decelerated on both stack measures. Morgan Stanley flagged this as a &#8220;slight setback&#8221; but attributed the April weakness in part to weather, according to the note.<\/p>\n<p><strong>More Retail:<\/strong><\/p>\n<ul>\n<li><strong>Another mall retailer quietly closed over 150 locations<\/strong><\/li>\n<li><strong>Ultra wealthy shoppers flock to this 63-year-old rugged retailer<\/strong><\/li>\n<li><strong>72-year-old mall retailers to close more stores in 2026<\/strong><\/li>\n<\/ul>\n<p>My review of the indexed data in Morgan Stanley&#8217;s framework reveals the longer context. Ticket \u2014 the average transaction value \u2014 has reached an all-time indexed peak of approximately 40% above 2019 levels. Traffic remains in negative low-to-mid single-digit territory versus the same 2019 baseline.<\/p>\n<p>This is the story of a home improvement market where people are spending more per project but making fewer trips, consistent with a housing market where existing homeowners are investing in their current homes rather than moving.<\/p>\n<p>That maintenance and repair demand comes on top of the roughly four million existing home transactions still occurring annually, even in this frozen market. It&#8217;s what gives Morgan Stanley confidence that Home Depot&#8217;s business can grind forward, despite the lack of a housing recovery catalyst.<\/p>\n<h2>Why Morgan Stanley sees $420 target as achievable from stock priced for no recovery<\/h2>\n<p>The valuation argument in the note is the core of why Morgan Stanley remains constructive. Home Depot is currently trading at approximately 19.5 times next 12 months price-to-earnings, roughly a 7% discount to the S&amp;P 500. Historically, the stock has commanded a 10% to 15% premium to the index, according to the note.<\/p>\n<p>That gap between current valuation and historical premium is the opportunity Morgan Stanley is pointing to. The market is not pricing in the 3.7% comparable sales growth that the consensus is modeling for 2027. <\/p>\n<p>Morgan Stanley&#8217;s own estimates are slightly more conservative: comps of 1.4% in fiscal 2026 and 3.5% in fiscal 2027. The conclusion is the same, however. At this multiple, investors are paying for a business that never improves from here.<\/p>\n<p>The $420 price target is based on approximately 25.5 times Morgan Stanley&#8217;s fiscal 2027 EPS estimate of $16.42, according to the note. Any glimmer of housing market inflection, whether from rate cuts, pent-up demand release, or accelerating home turnover, would create meaningful upside from a starting multiple that already embeds significant pessimism. <\/p>\n<p>Home Depot is a patient trade. Morgan Stanley is still holding.<\/p>\n<p align=\"center\"><strong>Related: BofA sees more room for Home Depot shares<\/strong><\/p>\n<p>#Morgan #Stanley #flags #major #Home #Depot #opportunity #ahead<\/p>\n","protected":false},"excerpt":{"rendered":"<p>I have been watching the housing market do something unusual for the better part of two years \u2014 stand completely still. Mortgage rates stay elevated. Existing homeowners won&#8217;t sell. Buyers&hellip; <\/p>\n","protected":false},"author":1,"featured_media":3464,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[246],"tags":[456,1988,5445,232,900,479,2684,480],"class_list":["post-3463","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-popular","tag-ahead","tag-depot","tag-flags","tag-home","tag-major","tag-morgan","tag-opportunity","tag-stanley"],"_links":{"self":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/3463","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3463"}],"version-history":[{"count":0,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/posts\/3463\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=\/wp\/v2\/media\/3464"}],"wp:attachment":[{"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3463"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3463"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.fintechpulse8.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3463"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}