Shares of the home-improvement giant Home Depot (HD) - Get Home Depot, Inc. (HD) Report were upgraded to buy from hold by analysts at Loop Capital, who noted that construction remains an essential industry during the coronavirus pandemic.
The firm trimmed its price target on the Atlanta chain to $235 from $240. The new target indicates 20% upside from the stock's Thursday closing price.
Home Depot shares at last check dropped 2.7% to $189.86.
"The intrinsic value of Home Depot's franchise has changed very little," the analysts said.
Home Depot "will be less impacted than most retailers based on the simple fact that
its stores are expected to remain open. Construction is considered an essential industry, and ... many projects are ongoing despite the spike in unemployment overall." `
Loop Capital also expects Home Depot to use this time to shore up its balance sheet and cut capital spending. Loop expects a $500 million decline in capex, to $2.2 billion, in fiscal 2020.
The $235 price target is based on Loop's estimate of 20 times future earnings of $9.90 in fiscal 2021. But the outlook is still at risk due to the uncertainty surrounding the coronavirus pandemic.
"Covid-19 could hit sales more than we expect," Loop Capital said.
"The pace of housing’s growth impacts home-improvement spending. Housing-market catalysts may result in near-term volatility. Significant movements in employment levels, tax rates, or economic growth would likely impact consumer spending."