Home Depot stock rises after analyst says buy, citing strong housing market and aging infrastructure

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Shares of Home Depot Inc. rose Thursday, after the home improvement operator was upgraded at Truist, as analyst Scot Ciccarelli expects supply and demand imbalances in the housing market, pandemic-driven behavioral changes and aging housing infrastructure to drive “significant” growth in the home improvement industry.

Ciccarelli said he also believes the company’s size and scale benefits and enhanced supply chain capabilities will help it gain market share from rivals.

The stock HD, +0.91% tacked on 0.7% in premarket trading. At Wednesday’s closing price of $389.40, the stock had lost 6.4% since it closed at a record $416.18 on Dec. 7, but still had run up 15.1% over the past three months while the Dow Jones Industrial Average DJIA, +0.32% had gained 5.6%.

Ciccarelli assumed coverage of Home Depot with a buy rating, after it was rated hold at Truist for at least the past three years. The stock price target was raised to $448 from $420.

“With existing home inventory levels near historic lows, we expect continued home price appreciation, which should drive further home investment activity,” Ciccarelli wrote in a note to clients. “Further, housing infrastructure continues to age, with ~65% of single family homes in the U.S. now at 30+ years old and older houses need more maintenance/repair activity.”

He said Home Depot’s more than $11 billion investment in its supply chain to provide next- and same-day delivery on large parcel product to more than 90% of the U.S. population should help the company gain market share and expand its reach into newer markets.

Also read: Home Depot teams up with Walmart’s GoLocal for speedy delivery service.

“Home Depot is ~50% bigger than its top-rival Lowe’s, providing it with unrivaled size and scale in the favorable home improvement sector,” Ciccarelli wrote. “Heavy investments in the company’s One Home Depot strategy should help accelerate share gains in this still highly fragmented sector.”

Home Depot’s stock has rallied 42.1% over the past 12 months through Wednesday, while Lowe’s Companies Inc. shares LOW, +0.82% have hiked up 47.6%. In comparison, the SPDR S&P Homebuilders exchange-traded fund XHB, +1.89% has advanced 34.1% over the past year and the Dow has gained 16.8%.