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How Does Home Depot’s Valuation Multiple Compare with Peers?

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Valuation multiple

The surge in Home Depot’s (HD) stock price since the announcement of its first-quarter earnings has increased its valuation multiple. As of June 21, the company was trading at a forward PE multiple of 20.0x compared to 18.4x before the announcement of its first-quarter earnings on May 21. In comparison, Home Depot’s peer, Lowe’s Companies (LOW) was trading at a forward PE multiple of 16.9x on June 21.

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As the graph below shows, Home Depot has been trading above Lowe’s since the beginning of 2018. The strong same-store sales growth and higher margins have allowed Home Depot to trade at a higher valuation multiple. Also, on June 21, Home Depot was trading at 20.7 times analysts’ 2019 EPS estimate of $10.12, and 19.0 times analysts’ 2020 EPS estimate of $11.02 with its EPS expected to rise by 2.3% in 2019 and 8.6% in 2020.

Analysts’ recommendations

Since the announcement of Home Depot’s first-quarter earnings, J.P. Morgan has raised its price target from $203 to $204, while Jefferies has increased its price target from $218 to $219. However, RBC has lowered its price target from $217 to $213.

Overall, analysts favor a “buy” rating for Home Depot with 67.6% of the 34 analysts that follow the stock giving it a “buy” rating, while the remaining 32.4% are in favor of a “hold” rating. Analysts have given HD a 12-month price target of $207.38, which implies a fall of 1.0% from its stock price of $209.39.

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