Goldman Sachs Maintains Buy Rating on Home Depot; FY26 Guidance Confirmed Despite Ongoing Pressure on Big-Ticket Discretionary Spending

Overview

Goldman Sachs published its commentary on Home Depot’s Q1 FY26 results, maintaining a Buy rating. The company reported 1Q26 comparable sales growth of +0.6% YoY—slightly above Goldman’s estimate but below consensus. Although growth remains weak, nine product categories posted positive comparable sales, an improvement from prior quarters. Management reaffirmed its FY26 gross margin guidance of 33.1% and expects margins to stabilize in the second half. Goldman lowered its price target from $409 to $390, primarily reflecting a downward adjustment in relative valuation multiples. However, the firm still believes Home Depot is well-positioned to accelerate growth as macro conditions improve and can gain market share through continued investments and acquisitions.

Core views

In terms of performance, 1Q26 comparable sales grew +0.6% YoY, driven by a +2.2% increase in average ticket partially offset by a -1.3% decline in transaction count. Nine of 16 merchandise departments posted positive comparable sales, improving from eight in 4Q25 and six in 1Q25, though big-ticket discretionary categories continue to face pressure. Pro customer comps were positive and outperformed DIY. On gross margins, Q1 gross margin declined 77bps YoY to 33.0%, slightly below both Goldman’s and consensus expectations, primarily due to product mix headwinds from the GMS acquisition and pricing investments in roofing categories. However, management maintained its FY26 gross margin guidance of 33.1% and expects margin pressure to ease in Q2, with stabilization in the second half. Goldman adjusted its FY26 gross margin model slightly downward from 33.2% to 33.1%. Regarding SRS, although Q1 same-store sales declined slightly, management expects mid-single-digit organic growth for FY26. SRS contributed approximately $4 billion in quarterly sales and delivered positive total and organic sales growth. Management remains optimistic about cross-selling momentum and expects to achieve a $400 million annualized cross-sell run rate by year-end. For earnings, Goldman slightly adjusted its FY26 EPS estimate from $14.85 to $14.84, mainly due to a reduction in same-store sales assumptions from 1.4% to 1.2%. FY27/28 EPS estimates were raised from $16.04/$17.38 to $16.06/$17.52, reflecting confidence in longer-term growth.

Analysis framework

Goldman employs a relative valuation methodology to derive its price target. The approach involves: first establishing downside, base, and upside scenarios for EPS and revenue based on company fundamentals and macro conditions; then assigning relative P/E multiples to each scenario (90% for downside, 100% for base, 105% for upside) with corresponding probabilities (25%/50%/25%); and finally calculating a probability-weighted target price using a market multiple of 24.0x. The reduction in the price target from $409 to $390 primarily reflects a downward revision in relative valuation multiples—from 105%/115%/120% previously to 90%/100%/105%—to better align with historical averages, partially offset by a higher market multiple of 24.0x (previously 22.4x). This approach reflects institutional caution toward valuation amid macro uncertainty.

Methodology notes

• Valuation MethodPE/PEG valuation

  Relative P/E Multiple Valuation

  Determines fair valuation by comparing the company’s P/E multiple relative to the market or peers. Goldman applies downside/base/upside relative multiples of 90%/100%/105% against a market multiple of 24.0x to calculate the target price, embodying a relative valuation framework.

• Event Arbitrage & Behavioral Finance

  Scenario Analysis

  Future performance is divided into three scenarios—downside, base, and upside—each assigned different probabilities and valuation multiples to compute a weighted-average target price. This helps investors understand a range of potential valuations under varying macro environments rather than relying on a single forecast.

• Industry/ Sector Analysis FrameworkVolume-price decomposition

  Comparable Sales = Transaction Count × Average Ticket

  A common retail analysis framework that breaks sales growth into changes in transaction volume and average ticket. In 1Q26, Home Depot’s average ticket rose +2.2% while transaction count fell -1.3%, indicating growth was price-driven rather than traffic-driven, reflecting consumer caution.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Home Depot Inc. (HD)

  Primary coverage; benefits from Pro customer growth and SRS integration

  Strengths

  Ongoing investments and acquisitions strengthen Pro ecosystem; 9 of 16 categories posted positive comps; capital allocation focused on long-term growth

  Weaknesses

  Big-ticket discretionary categories remain pressured; Q1 transaction count down 1.3%; short-term gross margin pressure

  Comparison

  Compared to other covered retailers (e.g., Lowe’s, Target), HD holds a competitive advantage in the Pro segment

  Risks

  Failure of housing turnover to recover, macro headwinds, intensifying competition, acquisition integration challenges

Key data

• 1Q26 Comparable Sales+0.6%YoY; above Goldman’s estimate of +0.5%, below consensus of +0.8%
• 1Q26 Gross Margin33.0%Down 77bps YoY, slightly below expectations
• FY26 Gross Margin Guidance33.1%Unchanged; stabilization expected in H2
• FY26 EPS Estimate$14.84Slightly adjusted down from $14.85
• FY27/28 EPS Estimates$16.06/$17.52Up from prior $16.04/$17.38
• Price Target$390Reduced from $409; implies 30.1% upside
• SRS Quarterly Contribution~$4BQ1 sales; positive growth achieved
• Cross-Sell Run Rate$400MExpected to be achieved by year-end

Impact & implications

For Home Depot, despite near-term headwinds from the housing macro environment, the company is strengthening its Pro ecosystem through sustained investments and acquisitions (e.g., SRS), positioning it to gain share during industry downturns. Management remains optimistic on the medium- to long-term U.S. housing fundamentals, including aging housing stock and home equity appreciation. Capital allocation prioritizes internal investment, dividends, and long-term strategic growth, with capital expenditures maintained at ~2.5% of sales and plans to open ~15 new stores in FY26. Share repurchases are expected to resume in 1H27. For the industry, home improvement demand remains constrained by macro conditions, but leading retailers with scale and supply chain advantages are better positioned to consolidate market share. Pro customers (professional contractors) continue to outperform DIY customers, reflecting greater resilience in professional renovation demand.

Risks

• Housing turnover fails to recover or macro headwinds dampen home improvement demand
• If the housing market enters a more prolonged slowdown, HD’s valuation could appear stretched
• Intensifying competition leading to pricing pressure
• Challenges in acquisition integration
• Lower-than-expected demand and rising supply chain costs creating dual pressure on revenue and margins

What to watch

• Whether FY26 H2 gross margins stabilize as expected
• If SRS achieves its mid-single-digit organic growth target
• Trend in comp sales divergence between Pro and DIY customers
• Whether share repurchases resume as scheduled in 1H27
• Pace of improvement in the housing macro environment