Can Lower Rates Unlock Big-Ticket Sales for Home Depot Ahead?

The Home Depot, Inc. HD delivered decent second-quarter fiscal 2025 results with sales rising 4.9% to $45,277 million and comparable sales up 1%. Management noted that momentum was broad across categories, but the bigger story lies in what could happen next as the Federal Reserve has begun lowering interest rates.

Big-ticket transactions above $1,000 increased 2.6% in the quarter, driven by categories like building materials, lumber and hardware. However, management recognized ongoing hesitation among customers for larger discretionary projects, which often depend on financing. On the second-quarter earnings call, CEO Ted Decker described the housing market as “frozen,” with turnover at multi-decade lows. He mentioned that economic uncertainty remains the main reason for delays.

The Fed’s move to cut its benchmark rate by a quarter-percentage point to 4-4.25% signals potential relief for mortgages and home equity credit lines. For Home Depot, that matters because many customers fund major renovations through these channels. While the company’s guidance does not assume a recovery in remodeling demand, a more accommodative policy could encourage customers to move forward with big projects.

Home Depot pointed out that projects are not being canceled but deferred. With homeowners sitting on record levels of tappable equity, even modest easing in borrowing costs could prompt movement on larger remodels. For now, management is staying disciplined, reaffirming guidance. Still, with rates edging down, the door may be opening for deferred projects to restart, potentially giving Home Depot a tailwind.

How Lowe’s and Floor & Decor Could Benefit From Lower Rates

Just as Home Depot eyes the potential impact of the Fed’s shift toward easier monetary policy, Lowe's Companies, Inc. LOW faces the same dynamics. Big-ticket remodeling projects tend to be postponed when borrowing costs are high, but with interest rates easing, Lowe’s could benefit from renewed demand in large discretionary categories, particularly since its DIY customer base is highly sensitive to credit costs.

Floor & Decor Holdings, Inc. FND also stands to benefit. The specialty retailer’s focus on flooring projects ties directly to remodeling and housing turnover, both highly rate-sensitive. If cheaper mortgages unlock mobility in the housing market, Floor & Decor may capture more demand for big-ticket flooring purchases. Like Home Depot, both Lowe’s and Floor & Decor are positioned to gain if homeowners choose to move forward with big remodeling projects as borrowing costs decline.

What the Latest Metrics Say About Home Depot

Home Depot shares have risen 7.9% in the past year compared with the industry’s growth of 2.6%.
 

From a valuation standpoint, Home Depot trades at a forward price-to-sales ratio of 2.49, higher than the industry’s 1.74. HD carries a Value Score of D. 
 

The Zacks Consensus Estimate for Home Depot’s current financial-year sales implies year-over-year growth of 2.9%, while the same for earnings per share suggests a decline of 1.4%.
 

Home Depot currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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