Should you buy Home Depot stock despite conservative guidance?

Home Depot Inc (NYSE: HD) is trading down on Tuesday after reporting weaker-than-expected sales for its fiscal fourth quarter.

Home Depot issues conservative guidance

The stock is taking a hit because the retailer cited a tight labour market, supply disruptions, and inflation as it issued conservative guidance as well.

Home Depot is now calling for about a 5.0% decline in its per-share earnings this year, while sales it said will likely remain unchanged versus 2022. In comparison, Street had anticipated a 0.1% and a 0.4% increase, respectively. According to Brian Nagel – Senior Analyst at Oppenheimer:

Initial 2023 guidance looks a bit soft that’s reflecting a more challenged backdrop. But HD is a very smart company. They understand how to guide where they can deliver and beat the guidance. There’s an air of conservatism here.

Peer Walmart also reported quarterly earnings today as Invezz posted HERE.

Is now the time to buy Home Depot stock?

Also on Tuesday, Home Depot announced a 10% increase in its quarterly dividend to $2.09 per share. On CNBC’s “Squawk Box”, Nagel also said:

The concern is that the home improvement market is slowing. We’re seeing a post-pandemic normalisation. [But] HD has an extraordinarily strong balance sheet. So, it’s easy for them to fund that dividend.

The Oppenheimer analyst recommends that investors buy Home Depot stock on the weakness. His $400 price objective suggests a close to 35% upside from here.

Home Depot Q4 earnings snapshot

• Net income printed at $3.36 billion versus the year-ago $3.35 billion
• Per-share earnings increased year-on-year from $3.21 to $3.30
• Net sales increased 0.3% only to $35.83 billion as per the press release
• FactSet consensus was $3.28 of EPS on $35.97 billion of net sales
• Cost of sales went up 0.2% and gross margin improved 10 basis points
• Comparable sales declined 0.3% versus a 0.3% increase expected
• Merchandise inventories were down 3.2% versus the prior quarter

Home Depot to offer hourly workers a raise

According to Home Depot, it will spend $1.0 billion to offer a raise to its hourly workers. Oppenheimer’s Nagel added:

That signals they’re still having a difficult time getting employees. So, that’s a further signal of a tight labour market, at least in this segment of the economy.

Home Depot stock is now down 5.0% for the year.