On Friday, Home Depot Inc. (NYSE:HD) shares declined by 1.54% after Loop Capital downgraded the stock to neutral from buy. Analyst Laura Champine also lowered the HD stock price target from $375 to $325 per share, citing supply chain headwinds and the possibility of the Federal Reserve raising interest rates next year.
The analyst reduced Home Depot revenue forecast by $700 million in Q3 and $300 million in Q4 amid in-stock position challenges it faces in key categories.
Home Depot shares have gained more than 25% this year despite the challenging conditions presented by the pandemic.
Is Home Depot undervalued?
From a valuation perspective, Home Depot shares trade at a reasonable trailing 12-month P/E and a forward P/E of 22.74 and 22.16, respectively. Therefore, value investors could still find the stock exciting despite Loop Capital’s downgrade.
Moreover, Street analysts expect the company’s earnings per share to grow by 16.50% this year, before rising at an average annual rate of 10.60% over the next five years. As such, growth investors could also find it as a compelling option for long-term investing.
Source – TradingView
Can the 100-day MA support hold?
Technically, Home Depot shares appear to be trading within an ascending channel formation in the intraday chart. As a result, the stock trades close to the overbought conditions of the 14-day RSI.
However, with more room left to run before becoming overbought, the upward movement could continue for the foreseeable future. Therefore, investors could target extended gains at approximately $345.47, or higher at $362.60.
On the other hand, if the stock pulls back after retesting the trendline resistance, it could find support at about $320.19, or lower at $298.98.
Time to buy HD?
In summary, although Home Depot has added more than 25% in market value this year, the stock could extend gains until it hits the key resistance zones.
The current bull run looks solid amid the reasonable valuation multiples and the company’s earnings growth prospects. Therefore, it may not be too late to buy HD shares despite the rating downgrade.
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