12:28 PM EDT, 05/13/2024 (MT Newswires) -- Home Depot ( HD ) is expected to see a sequential improvement in its fiscal first-quarter comparable sales, while the home improvement retailer's proposed acquisition of SRS Distribution should position it for market share gains, according to BofA Securities.

The company, which is scheduled to release its latest quarterly results on Tuesday, is estimated to report a same-store sales decline of 1%, marking an improvement from the 3.5% decrease it logged in the fourth quarter of 2023, BofA analyst Robert Ohmes wrote in a note emailed Monday. Bloomberg credit and debit card data showed higher observed transactions and average transaction value sequentially, according to the BofA note.

The current consensus among analysts on Capital IQ is for the company to post a same-store sales decline of 2.2%. Shares of the retailer edged down 0.6% in midday trading Monday.

The brokerage forecasts Home Depot's ( HD ) gross margin to expand this year, supported by lower product and transportation costs, as well as benefits from its $500 million fixed-cost reduction. One third of the cost reduction is predicted to be realized in costs of goods sold.

In March, the retailer finalized an $18.25 billion agreement to purchase building products supplier SRS Distribution, as part of efforts to speed up its growth within the residential professional customer market. At the time, the company said the deal will boost its total addressable market by about $50 billion to $1 trillion.

"While not disclosed, we would expect (Home Depot ( HD )) to realize top-line synergies from cross-selling opportunities and, to a lesser extent, buying synergies whereby (Home Depot ( HD )) and SRS have product overlap," according to Ohmes. The company has paused its share repurchases through 2024 while BofA expects it to pay down acquisition indebtedness for an additional 24 months.

"While the macro remains choppy, and we expect continued pressure in 2024 on discretionary and big ticket, we expect (Home Depot ( HD )) to see continued share gains as it accelerates growth and capabilities with the complex pro, both organically and inorganically," Ohmes said in the report. BofA also anticipates comparable sales to "see support" from the company's overall strong exposure to the pro-customer, on-shelf availability improvements and strategic investments.

BofA maintained its buy rating and the $425 price target on Home Depot's ( HD ) stock.

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