Home Depot had a challenging 2024 marked by rising interest rates and a cautious consumer. But as the year went on, signs of recovery emerged, setting the stage for a rebound in 2025, driven by increased housing turnover and pent-up demand in the home improvement market. Year-to-date performance: Up 12% Forward price-to-earnings multiple: 25 vs. five-year average of 21.5 Our rating: Equivalent to Buy 1 Our price target: $440 per share HD Home Depot's mountainous year-to-date performance . A Look Back to 2024 Home Depot had a volatile year in 2024, starting slow in a high rate environment before finding momentum later in the year. The stock was weak during the first half as higher borrowing costs weighed on expensive home improvement projects. Things started to change in March, when expectations of multiple interest rate cuts by the Federal Reserve lifted sentiment, sending the stock higher. However, these gains were short-lived as investors' expectations reset in May. The real turning point came in mid-September when the Fed began its easing cycle with a massive 50 basis point interest rate cut. This sparked optimism about housing turnover, which reached a 30-year low earlier in the year. Home Depot shares have risen steadily, reaching an all-time intraday high of nearly $440 on November 26. Since then, the stock has fallen more than 11% as of Monday trading. During this stretch, the S&P 500 has been relatively flat. However, Home Depot is among Jim Cramer's 12 core holdings. We initiated our position in Home Depot in early September, betting that lower mortgage rates could spark activity in the weak housing sector. Despite the Fed cutting two more interest rates for a total of 100 basis points, or one percentage point, of easing in 2024, the 10-year Treasury yield remained high. Mortgage rates take their cues from bond yields — so the cost of home loans has also remained high, driving expectations for a recovery in housing composition and the subsequent business Home Depot will receive as a result. '25 Looking Ahead Home Depot is poised for a comeback in 2025, with early signs of recovery already visible. The company's third-quarter results, which were announced in mid-November, indicated that its business had bottomed out and was expected to positively impact next year. As housing turnover rises, driven by eventual lower mortgage rates, demand for home improvement projects is expected to rise. The Fed expects two additional interest rate cuts in 2025. Since there will not be a significant increase in new homes being built next year, people will have to buy older American homes, which need to be upgraded and repaired. Whether they're contract professionals or do-it-yourself shoppers, Home Depot remains the go-to destination for home renovation supplies. We prefer Home Depot over competing Lowe's because it has more exposure to the professional market. Home Depot has strengthened its presence among professional contractors with its recent acquisition of SRS Distribution, a network of independent distributors of roofing and building supplies. Pricing remains key to Home Depot's transformation. If mortgage interest rates fall below 6%, the company's comparable sales should return to positive territory in time, reflecting weakness in large projects. The prospect of further easing by the Fed will likely support the stock since home improvement stocks tend to rise as interest rates fall, since they are inversely related. Earnings growth at Home Depot should follow. But there is a risk that longer-term bond yields – which mortgage interest rates track more closely – will continue to rise. This could delay Home Depot's return to growth. While it's possible that Home Depot could face some tariff issues regarding its exposure to Mexico, Canada and China, the retailer should be less at risk given that more than half of its portfolio comes from the U.S. (Jim Cramer's Longtime Charitable Trust H.D. See here for a full list of stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you'll receive a trade alert before Jim takes a trade. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charitable fund's portfolio. If Jim talks about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. The above Investment Club information is subject to our Terms and Conditions and Privacy Policy, as well as our Disclaimer. No obligation or fiduciary duty exists or is created by your receipt of any information provided in connection with the Investment Club. No specific results or profits are guaranteed.
A Home Depot store in Washington, D.C., United States on Monday, August 12, 2024. Home Depot Inc. is scheduled to announce Reported earnings numbers on August 13.
Ting Shen | Bloomberg | Getty Images
Home Depot It has navigated a challenging 2024 marked by rising interest rates and consumer caution. But as the year went on, signs of recovery emerged, setting the stage for a rebound in 2025, driven by increased housing turnover and pent-up demand in the home improvement market.
