As climate change became a mainstream concern, businesses that reduce climate impact became more relevant. However, companies like Home Depot (NYSE:HD) may cynically benefit from poor stewardship of the planet. Therefore, opportunistic investors may want to consider HD stock because inclement weather events associated with climate change spark demand for both preventive and post-damage-related purchases.
First, let’s see the framework. According to NASA, “unequivocal evidence that Earth is warming at an unprecedented rate” exists. Furthermore, the space agency asserts that human activity represents the principal cause. Notably, “While Earth’s climate has changed throughout its history, the current warming is happening at a rate not seen in the past 10,000 years,” according to climate.gov.
Along with commonly discussed macro data such as ocean temperatures and sea levels rising, the increasing frequency of extreme weather events also supports the concept of climate change. Fundamentally, then, as Mother Nature roars and wreaks havoc on civilizations, people must eventually pick up the pieces. Usually, those pieces (or their replacements, to be precise) can be found at Home Depot, thus benefiting HD stock.
To be sure, as TipRanks contributor Yulia Vaiman mentioned, climate change and all the proposed solutions for it represent a complex problem. At the same time, HD stock is also largely insulated from the climate crisis. Global warming or not, enough catastrophes occur naturally to keep Home Depot’s “disaster preparation and recovery” components busy.
However, the point is that the addition of more inclement-weather incidents (within reason, obviously) can be lucrative for HD stock. While affluence can certainly mitigate the recovery phase of a natural disaster, the incidents themselves don’t discriminate. Effectively, this dynamic increases the total addressable market of Home Depot.
Storms Cynically Support the Narrative of HD Stock
While it’s not the most pleasant idea to think cynically regarding potential investment opportunities, the concept certainly tempts onlookers. Especially since buy-and-hold opportunities shrink due to the risk-off nature of recent Federal Reserve policy, investors may be hungry for pretty much any viable idea. For HD stock, then, perhaps a few catalysts could be more welcome than more frequent inclement weather.
Home-improvement stocks, which in addition to HD stock, include names like Lowe’s (NYSE:LOW) and Walmart (NYSE:WMT), enjoy increased sales demand prior to and just after a storm. Intuitively, this storyline makes sense. When a major storm is on the horizon, people batten down the hatches. Later on, they attempt to rebuild what Mother Nature destroyed.
Additionally, the above framework does not operate exclusively in the domain of opinion. Rather, several news stories point to either rising demand for HD stock or increased sales at Home Depot ahead of major weather events. Most recently, HD saw a boost prior to Hurricane Ian touching down.
Also, in 2017, USA Today reported that Home Depot enjoyed a sales boost from disaster-prep demand associated with hurricanes Harvey, Irma, and Maria. Evidently, HD stock and disasters tend to go hand in hand.
To be 100% clear, such an observation should not be meant to impugn Home Depot. Whether the company exists or not, disasters will always happen. Ultimately, the company represents a net benefit to society. Nevertheless, it’s also fair to say that should climate change accelerate inclement weather events, it wouldn’t be too terrible for HD stock.
Is HD Stock a Buy, According to Analysts?
Turning to Wall Street, HD stock has a Moderate Buy consensus rating based on 12 Buys, seven Holds, and zero Sell ratings. The average HD stock price target is $342.82, implying 5.9% upside potential.
A Reliable Partner for All Storms
While Home Depot may offer the most relevance for literal storms, HD stock likewise offers shelter for investors running from the potential economic storm. Essentially, you’re not going to find too many other companies as reliable as this retailer.
On the top line, the company (on a per-share basis) features a three-year revenue growth rate of 14.7%, beating over 78% of its peers. That’s remarkable, considering the maturity of the underlying business. On the bottom line, Home Depot features excellent profit margins. Specifically, its net margin stands at 10.87%, above over 87% of the competition.
Now, the balance sheet could use some work. However, the company’s Altman Z-Score (a solvency metric) of 7.28 reflects very low bankruptcy risk within the next two years.
As long as management doesn’t do anything outrageously silly, Home Depot may be one of the most relevant brands of our time. Therefore, investors should consider HD stock.