Home Depot Earnings: Unsettled Macro Pinches Demand, Posing Near-Term Pressures; Shares Rich

We don’t plan a material change to our $263 fair value estimate for Home Depot as its third-quarter marks were near our forecasts. Specifically, $37.7 billion in net sales closely matched our $37.8 billion estimate and $3.81 in diluted EPS eclipsed our $3.72 preprint forecast leading to 20 basis points of operating margin upside from our forecast. Results were helped by Home Depot’s strategic EDLP tactics and its ability to blunt sales deleverage through enhanced productivity and agile execution (factors that underpin our wide moat rating). The firm’s updated full-year guidance now calls for a 3%-4% drop in net sales (from 2%-5%) and a 9%-11% decline in diluted EPS (7%-13% prior), largely in line with our negative 3% and negative 8% respective preprint estimates. Trading roughly 6% higher on broad market strength, shares still strike us as rich, trading roughly 16%-17% north of our existing intrinsic valuation.