Home Depot's Cautious 2026 Guidance Reinforces HOLD Thesis Amid Persistent Headwinds

What happened

Home Depot issued preliminary guidance for fiscal 2026, projecting modest comparable sales growth of flat to 2% and EPS growth of flat to 4%, signaling a tempered outlook due to a slow housing market. This aligns with the DeepValue report's assessment that elevated interest rates continue to pressure big-ticket project demand, a key drag on performance. The guidance confirms stabilized comparable sales, as seen in 1H FY2025, but at a level below the mid-single-digit threshold needed for an upgrade to BUY. Operating margins are expected to hold steady, yet the report cautions about gross margin dilution risks from ongoing integration of SRS and GMS acquisitions. Overall, this news reinforces the HOLD recommendation, as the stock's premium valuation of ~27x P/E isn't supported by the subdued near-term growth prospects.

Implication

The cautious guidance implies that Home Depot's growth will remain muted in the near term, constrained by high interest rates and a sluggish housing market. It highlights that the Pro ecosystem expansion, while strategic, may not yield immediate synergies to counterbalance current headwinds. Investors must closely watch comparable sales trends, as persistent low growth could erode the stock's premium valuation and shift risk-reward dynamics. The stable margin projection offers some reassurance, but integration challenges from acquisitions remain a critical monitor for potential margin erosion. Ultimately, this reinforces a wait-and-see approach, with the stock likely to trade sideways until clearer signs of acceleration or macro improvement emerge.

Thesis delta

The preliminary guidance does not shift the core DeepValue thesis, as it confirms expectations of modest growth and ongoing headwinds. However, it underscores the importance of monitoring integration execution and macro indicators, as failure to improve comps or margins could tilt the stance toward SELL. The HOLD recommendation remains appropriate, with downside cushioned by strong free cash flow but upside limited by valuation and growth constraints.