Home Depot (NYSE:HD): Its fate is in the hands of the next Federal Reserve interest rate move

While Australians go to Bunnings or Mitre 10 for DIY home improvement projects, Americans are most likely to go to Home Depot (NYSE:HD), which makes 70% more revenue than Lowe’s.

Home Depot is the company that made Bernie Marcus and Arthur Blank, the latter being owner of the Atlanta Falcons, rich and it has indirectly made many more people by spicing up their homes. You see, in America even one’s primary house is considered an investment and is subject to CGT while mortgage interest might be tax deductible.

But while America’s taxation differs from Australia, Americans love their homes and Home Depot can benefit from it. Nonetheless, where the Fed moves next could have a major impact.

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Overview of Home Depot

The company was founded in 1978, based in northern Atlanta where it remains headquartered to this day. It was founded with a simple idea: bigger stores with broader selection and better pricing than traditional hardware stores.

Home Depot grew rapidly through the 1980s and 1990s by rolling out huge “warehouse” style stores and focusing on both DIY homeowners and professional contractors.

It became the largest home-improvement retailer in the U.S., later expanding into online sales and services. The stock benefited from secular trends of housing turnover and increased home renovation spending over decades.

A COVID boom, then a correction

The COVID-19 pandemic was exceptional for Home Depot. With millions stuck at home and spending suddenly shifting into residential spaces, demand for home improvement exploded. People amplified projects they had otherwise postponed, turning dining rooms into offices, upgrading outdoor spaces, and tackling DIY jobs.

Home Depot reported record sales in 2021 and 2022, with revenue gains that otherwise would have taken nearly a decade under normal conditions. That surge fed directly into profits and share valuations — to the point investors now often benchmark post-pandemic performance relative to that unusual boom.

Since 2022, the economic backdrop has shifted dramatically. The U.S. Federal Reserve hiked interest rates aggressively to fight inflation, resulting in mortgage rates for 30-year fixed loans — a staple of American housing finance that simply doesn’t exist in Australia.

Now, unlike in Australia, where mortgages are only fixed for a few years, U.S. borrowers can lock in the same rate for decades, creating a “golden handcuff” that keeps homeowners with cheap pandemic-era debt from selling and moving. This lock-in effect reduces housing turnover and slows renovation activity because fewer homes are being bought, sold, and improved.

Shares in this company can rally on indications from the Fed, let alone movements. Of course, one move won’t mean people suddenly start or stop spending more, but the question is the broader direction. Is the Fed done with rate cuts or are there more coming?

Large renovation projects are vulnerable to rate moves

Home Depot has not shied away from this fact: high mortgage rates are delaying large renovation projects — especially big-ticket jobs like kitchens or baths — because financing is more expensive and housing is less mobile.

That “frozen” housing market depresses demand for the kinds of purchases that historically have driven outsized sales growth. The company has still managed to break a sales slump, with recent quarters showing modest same-store sales increases, but growth is significantly slower than during the wheels-off pandemic period.

Of course, there have been Federal Reserve cuts lately, but mortgage rates remain elevated by historical standards, and homeowners sitting on low locked-in rates are reluctant to sell or refinance. That reduces both replacement demand (buying new homes and renovating) and big project spending.

Analyst thoughts

The mean target price is not that much of a premium, at US$394.09 vs $382.37 right now. Analysts call for CY26 to be a nuanced year with $164bn revenue and $14.07 EPS vs $159.5bn revenue and $14.91 EPS in 2025.

But the next few years are tipped to be better with $171.5bn revenue and $14.72 EPS for 2027, then for $178.9bn revenue and $16.04 EPS in 2028. The company is at a P/E of 26.4x for 2026 but a PEG of 9x – the latter figure quite high even by American standards.

Conclusion