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Uncertain Future for Home Depot in 2024
Those waiting on a positive leap in Home Depot's (NYSE:HD) stock value in 2024 may have to hold their breaths a little longer. Despite recent market gains, Home Depot's performance has found itself in a Rising Wedge, an ominous sign as the market dips. The company's Q4 results and future guidance offer a mixed bag. While not in immediate danger and still promising a reliable capital return, signs of potential weakness in 2024 are emerging, warranting caution on probable optimistic forecasts. It's likely that Home Depot may descend below necessary support, leading to a period of stagnant price activity over several quarters.
What is a Rising Wedge?
In upswing market conditions, a Rising Wedge is indicative of a scenario where escalating highs and lows converge at a singular point. While the market may be pointing upwards, it may be stretching too thin and setting up for a flip. Although shares traditionally dip from the peak, as we're currently observing with Home Depot, the depth of this correction is contingent on a variety of elements. Home Depot's price trajectory might still find support from a critical level, the recently broken barrier, which will likely be tested for support.
Home Depot's Four Quarter Results and Prospective Guidance
Home Depot concluded Q4 with mixed results but the data points to a weakening core business with less than encouraging future projections. The firm reported net earnings of $34.79 billion, a 2.9% decline relative to the previous year. The company's revenues just about exceeded Marketbeat.com consensus predictions, but this falls short in negating other elements. US comps led a 3.5% drop with reduced tickets and transactions raising concerns. With a decreasing trend for five consecutive quarters, the transaction size is at its lowest in several years.
The margin outlook echoed the mixed sentiment, surpassing consensus but falling against the previous year. The end result was a GAAP EPS of $2.82, a drop of 14.5% despite just scraping past with a $0.04 outperformance. Future outlooks also leave much to be desired as the company plans for a mere 1% growth in 2024, which may be optimistic. Including an extra 53rd week, the company’s revenue and earnings which are currently guided below consensus are training the market to reinitiate price expectations for the stock and retail sector.
Capital Returns: Potential Downside for Price Movement
The capital returns from dividends and share buybacks provide some respite to Home Depot's price performance but may still affect the price movement. Annual dividends account for approximately 2.45%, with a 7.7% growth in Q1. But a slowdown in repurchases due to lackluster business, coupled with an above-average earnings multiple of 24X, positions the stock for potential frailty.
Furthermore, the sentiment of financial analysts could potentially influence price dynamics throughout the quarter. With a consensus of Moderate Buy, and incremental hikes in their price objectives, the mean target still trails the market. If there are no further upward revisions or should the trend revert, it may be hard for Home Depot to break current barriers as investors recalibrate expectations.
Technical Forecast: Deeper Dive for Home Depot
The company's share price fell over 1% following quarterly releases, hinting at potential support from the 30-day EMA. However, the weakening MACD and stochastic metrics indicate potential vulnerabilities within a bull market. The stock could slide further should it dip below the 30-day EMA, triggering a bearish trend. The sturdy support level is about $345; a breach here could subdue the market to its regular trading levels with a high chance of reaching a range bottom prior to mid-year.
