03:13 PM EST, 11/13/2024 (MT Newswires) -- Home Depot's ( HD ) Q3 results provided "some evidence" that the retailer was moving into the next phase of its recovery, UBS Securities said in a note emailed Wednesday.

The company reported its Q3 results on Tuesday, raising its full-year outlook largely as weather and demand for seasonal goods and outdoor projects helped the company log better results than expected.

Despite the improvements due to hurricane-related spending, UBS said the Q3 period showed that there's an element of home improvement demand that was non-discretionary and that homeowners were re-engaging with the category.

"This is important, as this is happening at a time when interest rates are high and existing home sales are low. Over time, these macro-dynamics should turn in the sector's favor," UBS wrote.

Home Depot ( HD ) also appears to be expanding its market share and the stock is well-positioned to outperform from here, according to UBS.

In Q3, Home Depot's ( HD ) gross margin narrowed by 40 basis points to 33.4%, marking the first quarter in 2024 with a year-over-year gross margin decline. This reduction was largely driven by product mix shifts following the SRS Distribution acquisition.

In Q4, the company expects continued margin pressure from the SRS product mix and hurricane-related demand, although additional average unit retail gains could help offset these impacts, according to the note.

UBS Securities remains optimistic about Home Depot's ( HD ) strategic investments, expecting an eventual turnaround in operating margins next year.

The firm reiterated its buy rating on the company's stock and increased its price target to $475 from $425 previously.

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