Melius Research initiated Home Depot with a Buy rating and a $397 target, according to the source article, even as the shares remained near a 2026 low. The bullish case assumes that improving existing-home supply will eventually revive repair and remodeling demand. Home Depot's own results show stabilization, but not yet the sharp turn required by that target.
Operations are improving slowly
Home Depot reported fiscal second-quarter sales of $47.9 billion, up 5.7% from a year earlier. Comparable sales increased 1.7%, including 1.3% in the United States, and adjusted EPS rose to $4.92. The company reaffirmed fiscal 2026 guidance rather than raising it.
Those figures support resilience, not a completed housing recovery. High mortgage rates can keep owners in place and discourage large discretionary projects. A larger supply of existing homes could eventually help because home sales often trigger renovations, but the timing remains uncertain.
The valuation requires more than stability
The source article said Home Depot's forward earnings multiple had compressed as the share price fell. That creates upside if earnings growth accelerates and investors again pay a premium multiple. It also creates a clear failure condition: if sales remain slow, the multiple may not recover even if margins stay stable.
The $397 target should therefore be treated as an analyst scenario, not fair value established by the company. Investors can reproduce the logic by multiplying a forward EPS assumption by a chosen valuation multiple, then stress-testing both inputs. A target built on higher earnings and a higher multiple carries two layers of execution risk.
Cash conversion deserves equal weight
Reported earnings do not automatically become cash. Home Depot is expanding its professional-customer business, which can increase receivables and working-capital needs. Investors should compare operating cash flow with net income, capital spending and shareholder returns over several quarters rather than draw a conclusion from one miss.
The most useful indicators are U.S. comparable sales, big-ticket transactions, professional-customer demand, gross margin and operating cash flow. Evidence of a housing turn should appear in sales and transaction data before it is assumed in valuation.
BTI's bottom line
Home Depot has enough financial strength to wait for housing activity to improve, but the Melius target needs a real demand inflection and a richer valuation. The company has reported modest comparable-sales growth, not the tipping point implied by the bull case. Investors should watch the operating evidence rather than treat a price target as a catalyst by itself.