Wall Street analysts are good about one of our retail stocks but wary about another. News from Home Depot Telsey Advisory Group, a leading retail industry analysis firm, upgraded Home Depot shares to Buy equivalent to Perform on Friday. The research firm also raised its 12-month price target to $455 per share from $360, implying an upside of about 14% from Thursday's close. Home Depot is scheduled to report third-quarter results before the opening bell on Tuesday. HD Mountain HD stock performance year-to-date. While forecasting “continued weakness” in third-quarter sales, analysts expect strong earnings and revenue growth in 2025 — driven by lower mortgage rates, continued hurricane recovery efforts, and easier comparisons against higher demand from the post-pandemic era. These catalysts, combined with Home Depot's strong business fundamentals, should continue to help the company gain market share in home improvement, Telsey analysts said. They highlighted further growth in the company's professional business supporting larger and more complex projects. Telsey expects Home Depot to outperform the S&P 500 in 2025. Shares have gained nearly 17% this year — currently underperforming the benchmark index's more than 25% advance in 2024. The Big Picture Telsey's growing confidence in Home Depot on the back of economic resilience and moderate inflation. The Federal Reserve's monetary policy easing, which included another interest rate cut on Thursday, is expected to lead to cheaper mortgages and a stronger housing market. Home builders rely on Home Depot as well as new homeowners working on renovation projects. Home Depot shares rose more than 2.5% this week in an overall market rally sparked by the quick decision of the presidential election. The stock has been largely on an uptrend since disappointing earnings and guidance in August. Bottom line, Jim Cramer has argued for months that Home Depot would be the main beneficiary of federal easing. However, stubbornly high bond yields ahead of Thursday's rate cut pushed that stimulus out because mortgages were high. During the morning meeting on Friday, Jim said Home Depot stock could eventually hit Telsey's price target of $455 because there's a lot to like about the company right now. The club's target price is $420. To be sure, there is usually a six- to nine-month lag after the Fed's first rate cut, which was in September, to when the housing market should see an improvement. This means that investors must be patient. Jim said he doesn't want people selling Home Depot stock when they see next week's earnings. While he admitted that “it will not be great,” he stressed that “expectations will be the most important thing.” News from Best Buy Citi lowered Best Buy's price target to $109 per share from $115 on Friday while maintaining a buy rating on the stock. BBY YTD Mountain Best Buy stock performance year-to-date. Analysts argue that President-elect Donald Trump's promised tariffs with China are a “near-term burden” for Best Buy, a retailer with significant exposure to imports from the world's second-largest economy. It's not all bad. The AI-driven technology replacement cycle, which should boost profits and same-store sales as customers turn to Best Buy to upgrade smartphones and computers, “remains intact,” Citi said. The big picture Under Trump, higher tariffs, especially against China, are expected to be part of his economic playbook. Any new tariffs on Chinese imports will pose a challenge for Best Buy since much of the electronics retailer's inventory is manufactured in China. Best Buy shares are down about 2.5% this week. Before the election, we reduced our Best Buy position – and took profits after the stock rose from its low on August 5 on interest rate cut optimism. Bottom line: Despite Citi's concerns, we're sticking with Best Buy. We continue to believe that the technology replacement cycle represents a tailwind for retailers as consumers seek to purchase the latest AI-driven gadgets. Best Buy should be well positioned to benefit from lower interest rates if home sales pick up again. This should lead to increased purchases of appliances, TVs and big-ticket items sold by Best Buy — just as we think will happen with Home Depot and its home building and home improvement products. Best Buy reports its quarterly results on November 26. (Jim Cramer's Charitable Trust is long HD, BBY. 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. 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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
Wall Street analysts are good about one of our retail stocks but wary about another.
