We're Striking 2 Names From the Bullpen to Add This Home Improvement Play

As we gear up for the next wave of earnings reports over the next seven trading days before the Thanksgiving holiday, we can add Home Depot (HD) to the growing list of companies telling us consumer spending remains restrained.

The company’s October quarter results, which included one month of the government shutdown, included bottom-line results that came up short of Wall Street expectations with comp sales of 0.2% also missing the 1.4% consensus forecast. Comp sales in the U.S. clocked in at 0.1%, which puts it in the same disappointing range for Starbucks (SBUX) and Chipotle (CMG) .

Before we continue, we have to point out that here, too, contrasting Home Depot’s comp sales figures against those for Costco (COST) , it’s pretty clear where folks are spending their shopping dollars.

Home Depot also issued downside guidance, and as we’ve seen from other companies that did the same in recent weeks, HD shares are trading off on Tuesday morning, continuing the recent slide from around $390 about a month ago. Implied in the company’s new calendar 2025 EPS guidance, which calls for a decline of 5% and suggests about $14.48 per share, is new current quarter EPS of $2.50 — well below the $2.92 market consensus forecast and the $3.02 delivered in the January 2025 quarter.

As you know, we’ve been skeptical about the housing market for a few reasons, and that led us not to pick up shares of Bullpen resident Builders FirstSource (BLDR) even as they plummeted over the last two months. The following comment tucked inside Home Depot’s earnings release gives us reason to remain on those sidelines:

"… an expected increase in demand in the third quarter did not materialize. We believe that consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand…"

Home Depot also cited the lack of storms impacting demand during the October quarter, which, to me, is a little puzzling, because how do you model storms and potential damage into your business in the first place?

In recent weeks, we’ve seen public homebuilders soften their delivery expectations even as they have copped to using sweeteners to move those units. When Lennar (LEN) and KB Home (KBH) report their next quarterly results in mid-December, that will bring the next sobering look at housing delivery expectations in 1H 20206.

But let’s get some context on the repair and remodel market, which is an important one for Home Depot and others with which it competes. Home improvement and repair spending vaulted from $404 billion in 2019 to $611 billion in 2022, fueled in part by pandemic-related spending and the accelerated shift to hybrid work and work from anywhere. Earlier this year, forecasts pegged that level of spending to remain above $600 billion for this year.

However, the combination of economic uncertainty, tariffs, inflation, and higher insurance costs has weighed on home improvement budgets, with some research indicating that:

Home improvement budgets dropped by 42% on average in 2025
71% of homeowners postponed renovations or repairs due to economic uncertainty.
Nearly one third of homeowners say they’re willing to wait another one to two years for major upgrades, while 15% are putting upgrades off indefinitely due to economic uncertainty

When coatings company Sherwin-Williams (SHW) reported its September quarter results in late October, when discussing its outlook for 2026, it shared:

"…it appears that a very challenging environment will persist through the first half of the year and most likely beyond that. In other words, softer for longer and continued choppiness across most end markets."

And if you’re thinking there was a massive pull-forward in home repair and remodel spending, well, let’s just say that Masco (MAS) is saying the same thing. At the Baird Annual Global Industrial Conference held last week, Masco’s CFO shared the following:

"We've obviously had a dynamic over the last number of years where there was a dramatic pull forward of R&R demand with regards to the post-COVID era, really in 2021, early 2022, and a bit of a hangover effect as a consequence of that. And now we've entered what we believe is a period of deferred spending. So, meaning that we've largely — it depends by category, but largely burned through that pull-forward effect and now are in the deferral section."

Connecting that back to Home Depot, one of Masco’s brands is Behr paint, which accounts for about 80% of paint sales at Home Depot.

Where Are We Going With This?

That's not only a logical question, but a great one as well, because we recognize two things.

Past a certain point, we will see a rebound in the housing market and repair and remodel spending. The typical pattern is we will see repair and remodel spending pick up as folks get their homes ready to put on the market. The timing on that, however, is uncertain at this time and will hinge on a combination of factors ranging from the overall economy, consumer spending, interest rates and inflation.

Second, odds are that Home Depot shares will bottom before we see that rebound in activity, but with the market increasingly thinking a December rate cut is off the table, the likelihood of that bottom coming near-term is low. We’re also entering what is typically a slow time of the year for repair and remodel spending, given the year-end holidays.

When we look at where HD shares have bottomed out over the last several years, excluding 2020 and its pandemic impact, the average P/E multiple is around 19x, and the dividend yield at about 2.9%. Coming into Tuesday morning’s earnings report, consensus 2026 EPS figures for Home Depot stood at $16.22, but given the downwardly revised EPS guidance for this year to about $14.48 level versus the $15 consensus figure, it’s safe to say those 2026 expectations are coming down.

Based on the comments from Masco and Sherwin-Williams above, odds are that those revisions for at least the first half of 2026 will be steep. The question is how steep, and given multiple uncertainties, we could very well see those consensus 2026 EPS figures move from being up compared to 2025 to being down.

This tells us there is simply no reason to rush into HD shares even after the larger pullback from $425 earlier this year.

With all of that in mind, and as part of our effort to identify some new candidates for the Portfolio, we will add Home Depot to the Bullpen. Subject to what we see developing on the inflation, interest rate and consumer spending fronts, and when we see housing deliveries bottom out, we’ll revisit HD’s potential place in the Portfolio.

As we make this addition, we will clean up the Bullpen and make room for some other would-be Portfolio candidates by striking the shares of Broadcom (AVGO) and Bright Horizons Family Solutions (BFAM). As we add more new names to the Bullpen, we’ll continue to review its larger lineup.

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At the time of publication, TheStreet Pro Portfolio was long COST.