Home Depot stock hits $425? 1 Wall Street analyst thinks so.

At least six Wall Street analysts cut their price targets The Home Depot (HD 0.58%) stock after the company’s second-quarter earnings release on Aug. 13. However, a UBS the analyst decided to take a different view and updated his price target to $425 from $400, while maintaining a buy rating on the stock.

An analyst becomes more optimistic

It’s unusual to see an analyst update a price target after management comes out and come down its full-year expectations for sales and earnings. Home Depot management now expects its full-year comparable sales to fall 3%-4% compared to previous guidance for a 1% decline. Full-year diluted earnings per share are now expected to fall 2%-4% compared to previous guidance for 1% growth.

That said, it’s no secret that relatively high interest rates have dampened the housing market and spending on home-related items, with a number of companies including WHIRLWIND and Pool Corp.speaking of deteriorating end market conditions. As such, bulls assume that much of the bad news is already priced in, and the only way is up for Home Depot stock, as the only way is down for interest rates.

Indeed, UBS analyst Michael Lasser thinks Home Depot is well positioned for an eventual turnaround. One way the company is achieving this goal is its recent acquisition of SRS, a distributor of roofing, landscape and pool products, to expand sales into the professional market.

Image source: Getty Images.

The bull and bear debate

The new UBS target implies a 17% upside from the current price and represents an optimistic view that lower interest rates will improve the housing cycle. Instead, bears believe a recovery could be slower than many expect.

The debate will inevitably continue, but bulls should take heart from relatively low unemployment rates, which typically support the housing market. While there are near-term risks surrounding Home Depot stock, the long-term picture looks more positive.

US existing home sales data by YCharts