Wall Street analysts have a good feeling about one of our retail stocks, but they're worried about another. The news from Home Depot Telsey Advisory Group, a leading provider of retail analytics, upgraded Home Depot shares to an above-average buy equivalent on Friday. The research firm also raised its 12-month price target to $455 per share from $360, representing a nearly 14% increase from Thursday's close. Home Depot is expected to report third-quarter results before the opening bell on Tuesday. HD YTD Mountain HD year-to-date stock performance. While Telsey analysts expect “continued weak” sales in the third quarter, they forecast strong profit and revenue growth in 2025 – driven by lower mortgage rates, continued hurricane recovery efforts and easier comparisons to the high post-period demand the pandemic. These catalysts, combined with Home Depot's strong business fundamentals, should continue to help the company gain market share in the home improvement space, Telsey analysts said. They highlighted continued growth in the company's Pro business, which supports larger and more complex projects. Telsey expects Home Depot to outperform the S&P 500 in 2025. Shares have gained nearly 17% this year, currently underperforming the benchmark index's gain of more than 25% in 2024. Big picture Telsey's increased confidence in Home Depot comes amid economic resilience and moderation in inflation. The Federal Reserve's easing of monetary policy, which included another interest rate cut on Thursday, should lead to cheaper mortgages and a stronger housing market. Home builders rely on Home Depot, as do new homeowners working on renovation projects. Shares of Home Depot rose more than 2.5% this week amid the broader market rally sparked by the quick resolution of the presidential election. The stock has largely been on the upswing since disappointing earnings and guidance in August. The bottom line is that Jim Cramer has been arguing for months that Home Depot will be one of the main beneficiaries of the Fed's easing measures. However, stubbornly high bond yields ahead of Thursday's rate cut canceled out that catalyst as mortgages were kept higher. During Friday's morning session, Jim said that Home Depot stock could eventually reach Telsey's price target of $455 because there is a lot of good about the company right now. The club price target is $420. Of course, after the Fed's first rate cut in September, there is typically a six to nine month lag for the housing market to recover. This means investors need to be patient. Jim said he doesn't want people to sell Home Depot stock when they see next week's earnings. While he acknowledged they “won't be great,” he stressed, “It's going to be the outlook that counts.” The Best Buy news Citi lowered its Best Buy price target to $109 from $115 on Friday US dollars per share while maintaining a Buy rating on the stock. BBY YTD Mountain Best Buy stock performance year-to-date. The analysts argue that China tariffs promised by President-elect Donald Trump represent a “near-term overhang” for Best Buy, a retailer heavily dependent on imports from the world's second-largest economy. It's not all bad. Citi said the artificial intelligence-driven technology replacement cycle, which is expected to boost profits and boost store sales as customers turn to Best Buy for smartphone and computer upgrades, “remains intact.” Big picture Under Trump, higher tariffs, particularly against China, are likely to be part of his economic plan. New tariffs on Chinese imports would pose a challenge for Best Buy because much of the electronics retailer's inventory is manufactured in China. Best Buy shares are down about 2.5% this week. Before the election, we reduced our Best Buy position and locked in profits after the stock rose from its August 5 low on interest rate cut optimism. Conclusion Despite Citi's concerns, we're sticking with Best Buy. We continue to believe the technology replacement cycle is a tailwind for retailers as consumers look to purchase the latest AI-powered devices. Best Buy should be well-positioned to benefit from falling interest rates as home sales pick up. That would boost purchases of appliances, televisions and big-ticket items that Best Buy sells, similar to what we believe would happen with Home Depot and its homebuilding and home improvement products. Best Buy reports quarterly results on November 26th. (Jim Cramer's Charitable Trust is Long HD, BBY. See a full list of stocks here.) 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A Home Depot store in Washington, DC, USA, on Monday, August 12, 2024. Home Depot Inc. is scheduled to release earnings results on August 13.
Ting Shen | Bloomberg | Getty Images
Wall Street analysts have a good feeling about one of our retail stocks, but they're worried about another.