The market is too pessimistic about earnings durability. Repair demand and professional-customer growth can support modest profit recovery without stronger home sales, provided input costs stop eroding margins after the tariff refunds disappear.
Key points
- $15.27 a share is my fiscal 2027 earnings estimate, without a housing rebound.
- $685 million of fiscal Q2 2026 profit came from tariff refunds, not stronger demand.
- $9.70 billion of first-half fiscal 2026 cash after capital spending supports debt reduction.
The call
The market is too pessimistic about lasting earnings. At my valuation of 22 times annual earnings, today's share price requires $13.00 a share. On my fiscal 2027 sales forecast, that means an operating margin of 11.1%, below this year's guidance. The alternative is a permanently lower valuation for stable profits.
What lifted quarterly gross margin (basis points)Home Depot August 18, 2026 call: rounded Q2 FY26 bridge; 100 basis points equal one percentage point.
I expect modest recovery, not a housing boom. My fiscal 2027 sales growth forecast is 3.0%, combining small-project demand, professional-customer distribution and new locations. Refunds explain the quarterly profit improvement, but management expects annual costs to offset them. Fiscal fourth-quarter margin stability is the first test; sustained cost pressure remains the central uncertainty.
Valuation
| Driver | My estimate |
|---|
| Fiscal 2027 sales | $175.6 billion |
| Fiscal 2027 operating margin | 12.8% |
| Fiscal 2027 net interest expense | $2.3 billion |
| Fiscal 2027 reported earnings | $15.27 a share |
| October 2027 earnings multiple | 22 times |
| Twelve-month target | $336.04 a share |
Earnings assume a 24.3% tax rate and one billion diluted shares, with no buyback boost. The multiple rewards dependable repair spending and debt reduction, not a return to peak profitability. My combined demand-and-valuation scenarios reach $253 in a downturn and $376 with stronger recovery, supporting a buy rather than a strong buy.
How lasting cost pressure changes the targetAnalyst calculations, October 8, 2026; FY27 operating margins, holding sales and valuation multiple fixed.
Risks
- Persistent input costs could outlast refunds; watch fiscal fourth-quarter gross margin against management's flat-year-over-year expectation.
- Higher mortgage rates could deepen project deferrals; watch transactions, since fiscal Q2 comparable transactions fell 1.0% despite higher spending per purchase.
- Acquisitions could consume cash without sufficient returns; first-half receivables grew faster than sales, so watch collections, inventory and debt before crediting cash improvement as permanent.
What would change my mind
I would withdraw the buy if fiscal 2027 guidance puts reported operating margin below 12.0% without an identifiable temporary cause.