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Morgan Stanley analysts cut the firm’s price target on Home Depot (NYSE:HD) to $340 from $360 and Walmart (NYSE:WMT) to $160 from $161 in a note to clients on Wednesday.
The analysts, commenting on both companies’ earnings, said while there were a few parallels between the two — wage investments and inventory progress — there were more contrasts, such as guidance conservatism, tone on the consumer, and traffic/ticket.
The stock reactions “seem fair,” said the analysts, with Walmart edging higher and Home Depot tumbling post-release. However, the analysts continue to prefer defensive names such as Walmart.
“At first glance, WMT’s commentary about growing signs of a stressed consumer seems inconsistent with HD’s assumptions for a relatively resilient consumer in ’23. But we think this can be in part explained by WMT and HD’s different core customers,” said the analysts. “WMT’s is a low to middle-income consumer grappling with high inflation, whereas HD’s is a homeowner who has seen a benefit from inflation in the form of home equity.”
“WMT’s more sobering consumer outlook is undoubtedly informed by the weakness it has seen in general merchandise and the overall mix shift to consumables,” they added. “In contrast, HD’s more balanced view may underestimate the lagging impact of a rapid deceleration in housing metrics.”
They went on to state that WMT has a greater chance of over-delivering on its guidance, while HD’s guidance “leaves more room for under-delivering.”
