Home Depot stock maintains Buy rating at TD Cowen as SRS acquires GMS

Investing.com - TD Cowen has reiterated its Buy rating and $470.00 price target on Home Depot (NYSE:HD) following the company’s agreement for its subsidiary SRS to acquire Gypsum Management & Supply (GMS) for $110 per share.

The acquisition comes after Quikrete Holdings (QXO) had made an initial bid of $95.20 per share several weeks ago, with reports indicating Home Depot had also submitted its own offer. Home Depot management described GMS as a bolt-on asset to SRS as the company continues to expand into new Pro verticals. InvestingPro data shows GMS maintains strong liquidity with a current ratio of 1.91, indicating solid financial health to support this transaction.

With the GMS acquisition, SRS now controls multiple verticals both outside the home (roofing, pool, yard) and inside (with GMS providing 40% wallboard, 14% steel framing, 14% ceilings, and 31% complementary products). The deal will also allow SRS/Home Depot to enter the commercial market, which is expected to represent 55% of GMS’s revenue through the business cycle.

TD Cowen noted that investor reaction to the deal has been "modestly positive," highlighting that the acquisition continues Home Depot’s M&A strategy toward building a broader Pro ecosystem following previous acquisitions of HD Supply and International Design Group. The deal is described as small, which reduces risk, and is expected to be accretive while still allowing Home Depot to return to share repurchases in fiscal year 2026.

The analyst also raised industry questions about the acquisition, including whether Home Depot and QXO can "stay out of each other’s way" as QXO aims to build a $50 billion top-line business, whether competitors Lowe’s (NYSE:LOW) and Floor & Decor will join the consolidation trend, and how the Pro industry landscape might evolve over the next 5-10 years.

In other recent news, GMS Inc (NYSE:GMS). has been the focus of significant acquisition interest, with QXO making an all-cash offer of $95.20 per share, valuing the company at approximately $5 billion. This offer represents a notable premium over recent trading prices. RBC Capital and Truist Securities have responded by raising their price targets for GMS to $95.20 and $105.00, respectively, reflecting the potential impact of the acquisition offers. Truist suggests that the offers could mark the end of GMS as a publicly traded company. Meanwhile, Loop Capital also increased its price target to $95.00, noting the high valuation of QXO’s offer. Additionally, reports indicate that Home Depot has submitted a competing offer, though details remain undisclosed. Baird downgraded GMS from outperform to neutral due to the acquisition dynamics, citing limited potential for a significantly higher bid from Home Depot. DA Davidson raised its price target to $83.00, acknowledging GMS’s better-than-expected fiscal fourth-quarter results and progress in cost-cutting initiatives.

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